Professional Documents
Culture Documents
1st edition
Real Estate Law
Guidelines for Investments
in Commercial Real Estate
Editor: LEGALINK
Editorial: Jakoby Rechtsanwälte, Dr. Markus Jakoby, Berlin
Design: Claudius Herwig, Berlin
4
Real Estate Law
1st edition
5
Introduction
After the subprime and the global financial crisis of the recent years with
sharp decline of almost all markets including the commercial real estate market
we see in 2010 the start of an recovery of the commercial real estate market
in almost all business centers worldwide. The investors and all players in this
field as well as and the financing banks look more precisely to potential risks of
products in the markets and this is only fair when you look back. Most products
in the current commercial real estate market therefore are more transparent and
most market players are reluctant to invest in products that are not transparent
and not easy to understand. It is good to see that the commercial real estate
sector is developing very well these days and investors realise established truth
that real estate has been on longterm basis a veritable investment over decades
as long as the facts of the object in question are professionally reviewed and
the investment professionally placed.
6
Introduction
estate and further aspects that have to be taken into account within the different
areas of the world in this field. We are pleased to give potential investors with
this book a first overview to what has to be taken into account when investing
in commercial real estate in specific areas of the world that might be of inter-
est for them. Of course every single placement has to be reviewed in detail by
specialists.
You will find contact data of the firms within this book and on the website of
our Legalink network (www. Legalink.ch). All firms are pleased to assist in this
field and will give you professional advice.
If you need a cross border analysis of diverse law aspects or joint efforts in a
cross border deal or if you have any questions how our network could advise
to get best solutions for investments in commercial real estate, please do not
hesitate to contact us. We will place you to the specialists of our network who
can assist you best in your case.
Markus Jakoby
*All answers in this booklet do not constitute legal advice as to the Legal
Position of the countries represented by the Legalink members in this booklet
and specific advice should be sought in relation to each particular set of facts
and circumstances.
7
Index
Australia................................................................................................ 12
Austria................................................................................................... 22
Belgium ............................................................................................... 30
Brazil..................................................................................................... 40
Canada.................................................................................................. 48
Chile...................................................................................................... 58
Colombia............................................................................................... 68
Costa Rica............................................................................................. 76
Cyprus................................................................................................... 86
Czech Republic..................................................................................... 94
England and Wales.............................................................................. 104
Finland................................................................................................ 116
France................................................................................................. 124
Germany............................................................................................. 136
Hong Kong.......................................................................................... 146
Hungary.............................................................................................. 162
Indonesia............................................................................................. 174
Italy..................................................................................................... 186
Korea................................................................................................... 194
Malaysia.............................................................................................. 206
8
Index
Mexico................................................................................................ 214
New Zealand....................................................................................... 230
Norway............................................................................................... 240
Panama................................................................................................ 246
Peru..................................................................................................... 252
Portugal............................................................................................... 260
Russia.................................................................................................. 268
Singapore............................................................................................ 278
Slovakia.............................................................................................. 288
Thailand.............................................................................................. 294
The Netherlands.................................................................................. 222
USA – California................................................................................ 302
USA – District of Columbia............................................................... 310
USA – Florida..................................................................................... 322
USA – New York................................................................................ 330
USA – Ohio......................................................................................... 340
USA – Pennsylvania........................................................................... 350
USA – Texas....................................................................................... 358
Vietnam............................................................................................... 368
9
Questions
1. Could you give a short outline with regard to the formal procedure of a real es-
tate transaction in your country starting from the signing of the purchase agree-
ment (including the closing) until formal ownership vests in the purchaser?
2. Does your legal system permit different sorts of ownership like ownership of
the whole land and construction or ownership for example only of one unit or
lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real property?
Which kind of entities can be owner of real property in your country?
4. In some countries the ownership of a building is implied in the ownership of
the land. Is it this way in your country as well and/or is it possible to have dif-
ferent owners of the land and the building erected on it?
5. Is the land and/or the building registered in a formal register and is a good faith
purchaser protected with regard to the entries in this formal register?
6. What tax aspects are directly involved in a purchase of real property, for ex-
ample real property transfer tax and what is the percentage of it?
7. Do you have to hold the property for a specific time with respect to tax reasons
or is it in this context no problem to buy and sell property on a short term basis,
for example within a year?
8. Can the seller get his money out of your country after the transaction (repatria-
tion of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed to
terminate the lease contract(s) or which restrctions have to be taken into ac-
count?
10. Are you allowed to change the use of a building from residential use to office
space or do you need official approval for doing so or is it not allowed at all?
11. To get a feeling as to the amount of costs involved, what costs should be taken
into account if a foreign investor bought an existing building (and land) for a
purchase price of EUR 5 Million, particularly
10
Questions
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others?
12. What tax aspects are directly involved when holding a property, for example
yearly land tax after the transfer of ownership and what is the percentage of
it?
13. What are the costs you have to calculate as a foreign investor, if you engaged
a professional caretaker for the purchased property? How does the caretaker
normally charge for their work?
14. Would you advise foreign investors at the moment to invest in your country
– directly in real estate?
– through real property funds, open or closed ones?
– through other clear and secure financial products?
– at the moment not because of the impacts of the world wide financial crisis?
15. Is any individual person and legal entity allowed to buy property in your coun-
try or are there restrictions with regard for example to nationality or registered
office of legal entities? If there are restrictions are there ways to organize a
domestic entity for the purchase on a valid legal structure notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business there,
what kind of official approvals are needed and what time and effort are needed
normally to get it?
17. Could your firm assist foreign investors in
– Finding interesting real estate and related valid investment products in real
property in your country where required through personally known estate
agents and other advisers?
– Developing construction projects?
– All legal aspects involved in these contexts?
11
Australia
Behan Legal
Francis Ruggiero
Level 1, 270 Bay Street
PO Box 745
Port Melbourne Victoria 3207
Australia
12
Australia
13
Legalink – Investments in Commercial Real Property
the contract into force with the purchaser paying the deposit on signing the
contract and the balance paid at settlement. The purchaser submits the legal
document that is necessary to transfer the title in the period between signing
and settlement by the purchaser. The Vendor ultimately hands the executed
transfer to Purchaser’s representatives at settlement, along with a stamp duty
declaration from the Vendor used in assessing “stamp duty” a tax paid by the
Purchaser on the transfer of land.
On settlement day, the vendor receives the balance of the purchase price in
exchange for the Certificate of Title to the land, which is the deed that denotes
ownership in the land registry office, a government body that keeps record of
ownership of land in the state under the Torrens System of registration.
All outgoings for the property including land tax, water authority service
charges, local council rates, rents, and Owner’s Corporation fees are ‘adjust-
ed’ proportionately between the Vendor and Purchaser. The parties notify the
authorities by either a Notice of Acquisition or Disposition. Once settlement
occurs, the estate agent, Vendor or representative hands over the keys to the
property and give vacant possession (unless a lease is in place).
Once the purchaser obtains the transfer document and the declaration for
stamp duty, the duty for the property is paid and “stamped” on the transfer
document so it may then be registered at the land registry office and legal title
passes to the purchaser.
2. Does the Australian legal system permit different sorts of ownership like
ownership of the whole land and construction or ownership for example
only of one unit or many units (condominium of the improvements)?
14
Australia
3. Does the Australian legal system permit joint ownership of real property?
Which kind of entities can be owner of real property in Australia?
Certificates of Title are registered at the land registry office. The ‘doctrine of
indefeasibility of title’ means that the registered proprietor of land specified in
the land registry office’s registry has a paramount interest (subject to any en-
cumbrances such as mortgages, easements etc.) in the land. The registered pro-
prietor is protected from losing title to a good faith purchaser who purchases
the property without notice of the current owner’s title to the property.
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Legalink – Investments in Commercial Real Property
6. What tax aspects are directly involved in a purchase of real property, for
example, real property transfer tax and what is the percentage of it?
Each state or region has different tax structures applicable to land acquisi-
tion and ownership. In Victoria, the two main sources of revenue derived from
real property are land tax and stamp duty. Land tax is an annual charge on
owners of land at midnight on 31 December of the year before the year of as-
sessment. The State Revenue Office assesses on a calendar year basis on the
unimproved value of the land determined by general valuations carried by the
relevant council every two years. There are some exemptions to land tax but it
is generally payable on investments properties and vacant land. As an example,
the 2010 general land tax rates for Victoria are:
Total taxable value Tax Rates
0 < $250,000 Nil
$250,000 < $600,000 $275 plus 0.2% for each dollar over $250,000
$600,000 < $1,000,000 $975 plus 0.5% for each dollar over $600,000
$1,000,000 < $1,800,000 $2,975 plus 0.8% for each dollar over $1,000,000
$1,800,000 < $3,000,000 $9,735 plus 1.3% for each dollar over $1,800,000
$3,000,000 and over $24,975 plus 2.25% for each dollar over $3,000,000
State Revenue Office assesses stamp duty on the greater value of the consid-
eration or unencumbered value of the land at the time of entering the contract
of sale. The Duties Act sets out the following formulae for calculating the
stamp duty:
Dutiable Value of
Property Transferred Duty
$0-$25,000 1.4% of the dutiable value of the property
$25,001-$130,000 $350 plus 2.4% of the excess over $25,000
$130,001-$960,000 $2870 plus 6.0% of the excess over $130,000
$960,001+ 5.5% of the dutiable value of the property
Stamp Duty is payable before a purchaser can register title, and in some
states, it is payable before settlement can take place.
16
Australia
7. Does a purchaser have to hold the property for a specific time for tax rea-
sons or is it in the context no problem to buy and sell property on a short
term basis for example within a year?
Capital gains taxation on the sale of real property is payable at the owning
entity’s normal marginal tax rate. It is possible to offset capital losses from the
capital gains in a financial year to calculate the net capital gain for a specific
entity, which could mean a smaller liability amount for this tax.
8. Can the vendor get his money out of Australia after the transaction (repa-
triation of funds)?
9. If one buys real estate that is leased, are you allowed to terminate the
lease; or which restrictions have to be taken into account?
When a property owner of freehold interest in the land disposes of that inter-
est, any lease applicable to that land will remain in force, and its particulars
disclosed in the Contract of Sale and vendor disclosure statement. The new
property owner will generally stand in place of the previous owner and have
the same rights and obligations in relation to the tenant of the land.
10. Is one allowed to change the use of a building from residential use to office
space or does one need approval for doing so or is it not allowed at all?
Local councils define the use of land in any particular area within their plan-
ning scheme by zoning. The zones include residential, business, industrial,
parks and recreational, mixed zones and more. Each zone type carries with it
requirements, permitted, and prohibited uses of the land within that zone.
Each zone has uses that are permitted without a permit, uses that require a
permit, and uses that are prohibited or have conditions attached to them.
If a use is not permitted under a particular zone, a person may apply to the
Minister to have the planning scheme amended. Depending on the circum-
stances of the amendment, this could prove quite difficult to achieve.
17
Legalink – Investments in Commercial Real Property
11. To understand the amount of costs involved, what costs are likely if a for-
eign investor bought an existing building (and land) for a purchase price
of EUR 5 Million, particularly:
– Notary’s costs
– Land register
– Real property transfer tax
– Advising lawyer (due diligence)
– Estate agent
– Other
Lawyer draft the contract of sale and vendor disclosure statement for a sale
of real property, and handle the conveyance of the land for the entire transac-
tion. The type of property and its intended use determine the complexity of the
transaction, and there are many variables in determining legal fees. The legal
fees will usually be determined on an hourly or item basis or mixture of the
two. Therefore, the more complex the transaction and attendances required to
complete it, the higher the legal fees.
The stamp duty on the legal transfer of the property differs from state to state.
As an example, in Victoria, in the case of EUR 5 Million ($7,153,680.24 AUD)
this would equate to $393,452.00 AUD or EUR 274,985.75. The registration
of the new proprietor’s name on title is calculated by another table of formu-
lae, when used for the amount specified (EUR 5 Million), it would equate to
$1,352.00 AUD or EUR 944.73, which is the maximum fee for registration of
a transfer.
Estate agents fees are negotiable and usually a percentage of the sale price
generally around 2 to 5% of the sale price.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Land tax is levied and is payable on a yearly basis. Land tax forms a charge
on the land; calculated on the unimproved value of the land determined every
two years by local councils. This varies from state to state.
There are some exemptions to land tax such as property used for primary
production or as a principal place of residence. Land tax usually applies to
18
Australia
13. What are the costs one has to calculate as a foreign investor, if one engages
a manager for the purchased property? How does the manager normally
charge for their work?
Real estate agencies that organise a tenant for a property generally manage
that property for the duration of the lease. Fees can vary but are usually ap-
proximately 5% of the gross monthly rent. In the case of a unit dwelling or
condominium; the Owners Corporation is responsible for the management of
the common property, and will levy annual fees. This fee will vary greatly
depending on the quality and services of the common property (gym, pool,
etc.).
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
There are factors to consider when investing in real property, as the prospects
of capital gains can vary depending on where the property is located. Potential
purchasers should make their own financial enquires as to whether the invest-
ment best suits them. Purchasers should seek the advice of licenced financial
advisors who are the only professionals allowed to give advice on financial
products.
15. Is there any individual person and legal entity allowed to buy property in
Australia or are there restrictions for example to nationality or registered
office of legal entities? If there are restrictions, are there ways to organise
a domestic entity for the purchase on a valid legal structure notwithstand-
ing?
If a foreign person wishes to acquire land in Australia, they must give notice
to the Treasurer of their proposed acquisition. If there is an objection to the
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Legalink – Investments in Commercial Real Property
acquisition, the Australian Government will provide that advice and make an
order prohibiting it. If a person is required to give notice of their intention and
they fail to, they may be liable for criminal charges.
There are controls and restrictions on the ability of non-residents being able
to own property in Australia even using a company. The ability to contract for
the acquisition of property is subject to approval from the Foreign Investment
Review Board. Any foreign person wishing to invest in Australia must consider
whether there is a requirement to notify, or obtain government approval under
its foreign investment policy. The proposals that require approval are:
1. Transactions involving certain foreign interests, and
2. Where the government considers few benefits accrue from foreign investment
and where the proposal exceeds the $50m threshold.
It is critical to understand the Purchaser’s property intentions to determine if
it will come under the threshold arm, however it falls under the foreign interest
arm, and a foreign interest includes:
1. A natural person, not ordinarily resident in Australia, and
2. Any entity in which there is a substantial foreign interest, which is defined
as an interest of 15% or more in ownership or voting power held by a single
foreign person (including associates), or an interest of 40% or more in the ag-
gregate ownership or voting power held by more than one foreign person (or
their associates).
Proposals involving the acquisition of interests in Australian urban land are
subject to special scrutiny. The definition of urban land is wide and includes
leaseholds and these proposals are subject to examination by the F.I.R.B, ir-
respective of value.
16. If a foreign investor buys a land in Australia to run a business there, what
kind of official approvals are needed and what time and effort are needed
normally to get it?
Subject to the issues stated above, a foreign company can also register with
ASIC as a foreign company under the Corporations Act.
It is important to note that if a foreign person intended to come to Australia
from overseas to work in the business, strict guidelines on obtaining a working
visa must be adhered to and the visa must be granted before this can occur.
20
Australia
Yes, Behan Legal deals with numerous and diverse real estate transactions
including construction projects and organising legal and corporate structures
to assist clients in their property holdings.
Behan Legal
Francis Ruggiero
Level 1, 270 Bay Street
Port Melbourne Victoria 3207 Australia
Phone +61 03 9646 0344
Facsimile +61 03 9646 3759
Postal Address:
Behan Legal
PO Box 745
Port Melbourne, VIC 3207
Australia
ruggiero@behanlegal.com
21
Legalink – Investments in Commercial Real Property
Austria
Am Getreidemarkt 1
A-1060 Vienna
Austria
22
Austria
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In Austria real estate transactions are governed by both federal law and state
laws which vary from province to province. It is also important to know that all
properties in Austria are formally registered in the land register:
Land register
The land register is administrated by the district courts. The land register
contains information regarding the property, i.e.
– location and size of the property
– legal owners
– encumbrances on the property i.e. rights of way, rights of pipes, liens, pre-
emption rights, options to repurchase, restraints on alienations.
For the transfer of the ownership of a property from the seller to the buyer the
transfer has to be formally registered in the land register. This entry of transfer
of title is a prerequisite for the transfer of title.
Contact and first negotiations
The parties of a property transaction often meet through real estate agents,
but also through the internet or newspaper advertisements. The parties usually
first negotiate the main economical aspects like the price of the property and
the warranties that shall be given.
Formal Contract, Notarisation of Signatures and Handover
On basis of the negotiated price and the warranties a lawyer or a notary is as-
signed to draft a contract. In Austria it is very common that the buyer chooses
the lawyer/notary, because it is legal custom that the buyer has to fully pay for
the lawyer’s/notary’s work.
The contract includes terms such as the sales price, financing terms, the
condition of the property, the handover date and any warranties. The contract
normally states that the buyer has to transfer the purchase price to an escrow
account of the lawyer/notary after signing of the contract and after notariza-
tion of signatures by a notary public. It is the seller’s duty to hand over all
documents listed in the contract to the lawyer/notary which are necessary for
the registration of the buyer’s (unencumbered) ownership in the land register.
Having received these documents, it is the duty of the lawyer/notary to forward
23
Legalink – Investments in Commercial Real Property
the purchase price from the escrow account to the seller’s bank- account and
to file an application with the land register for the registration of the buyer’s
ownership.
In most of the nine Austrian provinces the transfer of property also requires a
separate approval by the provincial authorities according to the invidual Land
Transfer Acts of the respective provinces. An approval is usually required when
the transaction entails transfer of agricultural or forestry land, building plots
or the acquisition of property by non EU/EEA residents or entities. Obtaining
such an approval normally takes two to eight weeks.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. The Austrian legal system permits ownership of the whole land and own-
ership of parts of the land (co-ownership). A special form of the co-ownership
is the condominium-ownership. It is the primary form of co-ownership in
which specified parts of a piece of real estate are separately and individually
owned.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. The Austrian legal system permits joint ownership of real property.
Physical persons and legal entities may hold property individually or jointly.
Some exceptions with respect to condominium-ownership are made.
Austrian real estate law is based on the principle that the owner of the land is
also the owner of the non-independent parts that are erected on it. But there are
two exceptions to this rule:
– Superstructures (Superädifikat)
– Building Rights (Baurecht)
24
Austria
Superstructures are constructions, which are erected with the intention not
to leave them on a permanent basis. The type of construction and partially the
intent of the parties is relevant for this legal structure. The erection of a super-
structure need not be registered in the land register, but the subsequent transfer
of the ownership of the superstructure to a third party. Superstructures can,
therefore, not always be seen by consulting the land register.
A building right is the right to erect a building on a plot of land. This right
becomes existent upon registration in the land register. The right lasts between
ten and 100 years. Upon expiration of the building right, the property owner
must compensate the previous owner of the building right, if not agreed other-
wise, with 25 per cent of the residual value of the building.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
In Austria all properties are formally registered in the land register and good
faith buyer may rely on the accuarcy of the information that is registered in the
land register.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Real property transactions are subject to real estate transfer tax corresponding
to 3.5 percent of the purchase price (in case of close blood relationship only
2 percent). When real property transfer tax is applicable, no additional VAT is
payable. This rule does not apply when the parties choose to transfer the prop-
erty with VAT (at a rate of 20%).
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
In Austria, one normally has to hold the property for 10 years calculated from
the signing of the contract to avoid speculation tax that would be triggered if
the resale price of the property exceeds the acquisition price (in certain cases
25
Legalink – Investments in Commercial Real Property
this time period is expended to fifteen years). For real estate property used as
private residence by the owner, this time period is only two years. If the sold
building was constructed by the owner himself, any profits in context to the
building itself are tax free.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
In Austria, we have the general rule that the buyer of a real property has the
right to terminate the lease agreement by observing the statutory notice period
(Section 1120 of the Austrian Civil Code). But normally the buyer accepts the
duty to take over any existing lease agreements and, therefore, the buyer is
not free to terminate the existing lease agreements. If the lease agreement is,
however, registered in the land register or if the Austria Rental Act applies (in
whole or in part) to the lease agreement, the buyer automatically steps into the
landlord’s position under the lease agreement by operation of law. Given that
the Austrian Rental Act applies (at least partially) to at least 90 percent of the
leased agreements in Austria, the general rule which allows the owner to termi-
nate leases has no particular significance. If the buyer has the right to terminate
the lease agreement, the lessee has the right to demand compensation from the
seller of the real property.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
26
Austria
11. To understand the amount of costs involved, what costs are likely if a for-
eign investor bought an existing building (and land) for a purchase price
of EUR 5 Million, particularly:
– Notary’s costs
– Land register
– Real property transfer tax
– Advising lawyer (due diligence)
– Estate agent
– Others
– Notarial costs: EUR 111,30 plus 20% VAT for the notarization of the first sig-
nature and EUR 55,65 plus 20% VAT for the notarization of all further signa-
tures on the purchase agreement
– Land register: EUR 50,000 (1% of the purchase price) for the registration of
the ownership
– Real estate transfer tax: EUR 175,000 (3.5% of the purchase price)
– advising lawyer: depending on the agreement with the lawyers. Usually law-
yers charge by the hour (EUR 250 to EUR 450 plus 20% VAT), so that fees are
dependent on the complexity of the transaction. It is also common to charge a
percentage (1% to 3% plus 20% VAT) of the purchase price as a lump-sum fee,
depending on the complexity and the value of the transaction.
– Real estate agent: up to 3% of the purchase price plus 20% VAT)
– Others: about EUR 100 to 300 for the approval by the provincial authori-
ties, if required under the Land Transfer Act of the respective Province;
0.8% or 1.5% of a loan as stamp duties (this may be avoided in some cases);
1.2% of the amount of a registered mortgage, as court fees for the registration
in the land register;
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
In Austria owners are subject to a yearly land tax (“Grundsteuer”). The tax
rates are different in each municipality and range from approximately 0.2%
to 1% of the (historic) value of the property (Einheitswert). The value for tax
purposes is not the real value of the property, but significantly less. Therefore
27
Legalink – Investments in Commercial Real Property
the actual tax rate is about 0.05% to 0.3% of the real value of the object per
year as land tax.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
The costs of a property manager differ from property to property and are nor-
mally calculated on basis of the rentable space of the real property and range
from EUR 2.80 to EUR 4.50 per square meter and year. The costs (at least parts
of it) for the property management are usually charged to the lessees as a part
of the general operating costs.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
All nine Austrian provinces have different legal restrictions for the purchase
of real estate by non-EU/EEA residents or entities. These restrictions are gov-
erned by the Land Transfer Acts (state law). These Land Transfer Acts require
the buyer of a real property to have a connection with Austria either by nation-
ality (for residents) or business location and shareholders (for entities). The
specific requirements for the purchase of real property however are different
28
Austria
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
We are capable of assisting clients in all aspects of real estate and construc-
tion projects. Please contact Manuela Maurer-Kollenz or Michael Kuen at:
29
Legalink – Investments in Commercial Real Property
Belgium
iustica.be
Advocaten-Avocats
30
Belgium
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
31
Legalink – Investments in Commercial Real Property
Once all the data are verified, the notary / notaries of the parties update the
purchase pre-contract and on this basis draw up the notarial deed.
The notary / notaries convene then a meeting for the signature of the notarial
deed. For the day of the signature, the buyer shall prepare the agreed sum for
the payment of the price of the real estate, the registration fees (usually 12.5%),
notarial fees and VAT as the case may be for new-building. The seller shall
prepare the de facto transfer of the real estate to the buyer (ex: keys, closure of
the water meter, transfer of an existing lease agreement and the rent guaranty),
if it has not been done before.
Usually, the notarial deed with respect to the purchase of the real estate is
entered into together with a notarial mortgage loan deed between the bank and
the buyer.
After the signature of the notarial deed, the notary / notaries has / have to
– register the notarial deed in the land registry;
– register the mortgage, if any;
– deliver to the buyer his property title.
As from the date of the registration in the land registry the transaction has
effect vis – à – vis third parties.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Apart from the full ownership of real estate including land and constructions,
the classic type of the distinct ownership between land and construction, the
simple co-ownership (or joint ownership) of real estate and the co-ownership
in the community parts in an apartment building should be called attention to.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
32
Belgium
to force the sale of real estate in order to get the proportional portion from the
sale price.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
33
Legalink – Investments in Commercial Real Property
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
For the purchase of real estate a registration tax is due upon the registration
in the land register.
The percentage of the tax depends on the Region where the real estate is
situated:
– in the Brussels Region and in the Walloon Region, the percentage is 12.5 %
of the price;
– in the Flemish Region, the percentage is 10 % of the price;
Under certain circumstances, the percentage may be reduced to 6% (purchase
with a social purpose) or 5% (modest residences and rural real estate).
For sales of newly built constructions, for buildings under the construction
and for sales “on blue print” the registration tax is only due on the value of
the land. The construction is submitted to the value-added tax (VAT), which
is 21%.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
A company generating profits from selling and buying real estate is submitted
to regular company tax (a fixed tax rate, basically 33%), independently from
the period of time during which the real estate has been held by the company.
In principle, profits from real estate transactions generated by individuals in
the framework of the management of their private estate are not taxed. How-
ever, for short-term sales a capital levy is applied (tax rate varies in function of
the period of the sale: 3, 5 or 8 years).
Profits from real estate transactions generated by individuals in the frame-
work of their professional activity are taxed under the income tax legislation
(progressive tax rate). If the real estate has been qualified as a fixed asset in
the accounts of the individual for at least 5 years or in case of cessation of the
professional activity, a fixed tax rate is applied (basically16.5%).
34
Belgium
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Basically there are no restrictions for the transfer of money from Belgium to
another country, or from abroad to Belgium.
Attention must be called to the money laundry legislation, which focuses
especially on banks, notaries, attorneys, who are under the obligation to “blow
the whistle” when incoming/outgoing money is presumed not to be clean.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
The sale of leased real estate does not prejudice the lease contract. The sale
of the real estate implies the assignment of the lease contract from the seller to
the buyer, investing the buyer in the same rights and obligations of the seller
in his quality of landlord.
Restrictions which should be taken into account depend on the type of the
lease contract. Belgian legislation strongly protects commercial (retail) and
residential lease contracts, as opposed to, for instance, office space and storage
space lease contracts
In case of a residential lease contract, which by law grants a 9 year title to the
tenant, if no agreement is found between the tenant and the landlord, the latter
is entitled to terminate the lease contract before its expiration in the following
situations:
– the landlord wishes himself to occupy the premises;
in this case notice may given at any moment and the notice period to be ob-
served is 6 months
– the landlord wishes a member of his family to occupy the premises;
in this case notice may only be given 6 months before the end of the first or of
the second triennium
– the landlord wishes to proceed with works in the premises;
in this case notice may given at any moment and the notice period to be ob-
served is 6 months
In case of a commercial lease (retail, meaning premises linked to selling
goods or services to the consumer), which by law grants a minimum 9 year
title to the tenant, the landlord may terminate the lease contract by means of a
one year prior notice which may only be served before the end of the first or of
35
Legalink – Investments in Commercial Real Property
the second triennium. The landlord has to justify that he wishes to establish his
own business in the premises.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
The change of use of a building from residential use to office space and the
other way around mostly requires approval (license) from the local authorities,
certainly in the major cities such as Brussels.
In many circumstances the urban planning regulations do not allow any re-
conversions from the residential use to the office space use or to the use for
any business activity.
Therefore, before considering the purchase of real estate, the examination of
the urban planning status is of major importance.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– Notary’s costs
– Land register
– Real property transfer tax
– Advising lawyer (due diligence)
– Estate agent
– Others
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
36
Belgium
When holding real estate the owner has to pay the yearly land tax which is a
percentage of the cadastral income. The cadastral income is the hypothetical
average income that the real estate provides to its owner, which for the last
time has been established by the tax administration in 1975 and which is sub-
ject to yearly indexation.
The percentage of the land tax includes:
– the regional tax: 1,25% for properties situated in Brussels and Walloon Re-
gions and 2,5% for properties situated in Flemish Region;
– the provincial tax, which is calculated in function of the amount of the regional
tax;
– the municipal tax, which is calculated in function of the amount of the regional
tax.
For instance, indexed cadastral income of a residential real estate in the
amount of EUR 7’000 would give a yearly land tax of EUR 2’700 in 2009, or
40% of the cadastral income, which is mainly due to the high provincial and
municipal taxes.
On top of the land tax, income taxes can be due on the effectively collected
lease income, especially when the lease price is deductible as professional op-
erating costs by the tenant.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Usually the caretaker would propose the following services for around EUR
200 (VAT excl.)/ month:
– administrative and secretarial management (organisation of meetings, control
of General Assembly of co-owners, reception of the correspondence to the
owner);
– following up on all necessary insurance contracts;
– following up on contracts with the suppliers, cleaning services, conformity
control of facilities ;
– following up on control of the concierge;
– financial management (payment of invoices; accountancy of the co-owner-
ship) ;
– technical management (keeping in order of building facilities);
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Legalink – Investments in Commercial Real Property
For the introduction of the applications for different permits, the caretaker
would work on basis of a fixed rate which varies between EUR 300 and EUR
1200 (VAT excl.).
The legislation on co-ownership (or joint ownership) imposes the appoint-
ment of a “syndic” for the management of the common parts of the real es-
tate.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial cri-
sis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Any individual and any legal entity is allowed to buy a real estate in Belgium,
without any restrictions with regard to nationality, the residence or the regis-
tered office of the buyer.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
A foreign investor may buy without major difficulties a plot of land in Bel-
gium. However, in order to run a business, the foreign investor shall prior to
38
Belgium
the purchase procedure enquire about the local urban planning which covers
the plot of land he wishes to buy.
The areas which have been qualified as industrial areas by the urban planning,
are the safest areas to invest in for operating a business.
For all the other areas the procedure to get the approval to operate a business
on the plot of land may be very time and costs spending.
Contact persons:
Johan LAMBERS
jolambers@iustica.be
www.iustica.be
T. : +32 (0)2 548 29 72
F.: +32 (0)2 502 81 90
Anna SUSSAROVA
asussarova@iustica.be
www.iustica.be
T. : +32 (0)2 548 29 77
F.: +32 (0)2 502 81 90
39
Legalink – Investments in Commercial Real Property
Brazil
40
Brazil
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Transactions that involve real estate in Brazil are governed by federal law,
more specifically by the Brazilian Civil Code (Federal Law 10,406 of January
10th, 2002) and by Federal Law 6,015, of December 31st, 1973.
In general lines, a party may purchase real estate directly from the seller, or use
a broker to intermediate the transaction. Whichever option the buyer chooses to
proceed with, it is important to do some research before signing any agreement
– especially to identify if the real estate is owned by the person intending to sell
it, and to check if it is unencumbered. For such purposes, the purchaser should
identify where the real estate is registered – every piece of land in Brazil must be
registered with a Real Estate Public Registrar, based on its location.
The registration generates a certificate, which is the official and public docu-
ment that describes (i) the size of the land, (ii) its adjoining boundaries; (iii)
any construction or betterment in the land; (iv) all liens and/or encumbrances
to the real estate; (v) current status and history of ownership; (vi) any and all
information pertinent to the land and any building on it.
Having real estate deals registered confers authenticity, safety and validity
to transactions. A purchase agreement signed by the parties – on itself - does
not transfer title to the property, but simply generates the right to a credit; or,
in other words, it generates, for the seller, the obligation to transfer the land.
Its effects, however, are only produced between the parties to the agreement
and cannot be opposed erga omnes. Title transfer only occurs when the sale
is duly registered with the Real Estate Public Registrar. Once the purchase is
registered, the sale is presumed legal – but may be reversed if the transaction
contains any vice that may permit its annulment.
Our advice for any person or company intending to purchase land in Brazil is
that the purchaser requests that the seller presents: (i) the Real Estate Certificate
proving who has title to the property (ownership); (ii) a certificate that proves
the real estate is not burdened by mortgages or any other liens; (iii) seller’s
good standing certificates to show the seller is free to sell the land and is not
undergoing, for example, any bankruptcy procedure, or is not a defendant in
suits that may compromise its right to sell the real estate without committing
41
Legalink – Investments in Commercial Real Property
fraud against its creditors; (iv) a certificate proving all taxes that fall on the
property are paid up, as well as a general tax clearance certificate In addition,
it is advisable to check whether (i) the land is subject to expropriation or not;
(ii) if there are City Hall projects that may involve the real estate;(iii) if there
is someone living in the land that may claim to have lived there long enough
to claim property (usucapião), etc. Once all such documents are analyzed and
found to be in order, the prospective purchaser may proceed with reviewing
the purchase and sale contract and negotiating its conditions. It is advisable to
have an attorney overseeing the whole operation.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Brazilian law permits the construction of buildings in a single real property parcel
with all the units or apartment owners having a right in common to use the common
elements with separate ownership confined to the individual units or apartments,.
3. Does the legal system of your country permit joint ownership of real proper-
ty? Which kind of entities can be owner of real property in your country?
Yes; property of the land may be shared by co-owners and that, in Brazil, is
called condominium: when one real estate is owned by more than one person
or company. Brazilian law provides for two types of condominium: (i) common
or ordinary condominium; and (ii) special condominium. In the first case, each
owner owns a share over the land, which is called an ideal fraction, because the
person or company does not own a specific part, but a percentage of the total.
In the latter, however, the real estate is actually divided and individuals and/
or companies will be owners of a specific unit and perhaps share the common
ownership of part of the land. It is the case of apartment buildings, where one
owns the apartment and shares the benefits and responsibilities over the com-
mon land, like gardens and pools. Legal entities and individuals are allowed to
purchase real estate in condominium.
42
Brazil
Yes, in Brazil, as per article 1253 of the Brazilian Civil Code, any construc-
tion and plantation on one’s land is presumed to belong to the owner of the
land, unless proven otherwise. Exceptions may apply as it happens, for exam-
ple, to mines, which are submitted to specific law and are considered a separate
part of the land for exploitation purposes.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes. As already mentioned in question No. 1, all land and buildings construct-
ed on them are to be registered with a Real Estate Public Registrar, based on
its location. If land is sold and registered with the Public Registrar, title to such
land is thus transferred to the purchaser and no other prospective buyer may
allege that he or she did not know that the land had already been transferred,
since all real estate registries are public. Registration of land, hence, protects
good faith purchasers.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Transfer of property is taxable in Brazil. The type of tax that will apply depends
on how the land is transferred to another party. If transfer is made by means of
purchase, with payment for the land, then the buyer shall pay a Municipal tax
called ITBI. The amount varies from City to City, but it is usually around two to
three percent of the value of the real estate. If, however, transfer occurs through
inheritance or through a donation, then the applicable tax is a State tax called
ITCMD, which is usually around 4%, but also depends on each State.
In addition to transfer taxes, real estate is also taxed on its ownership. Owners
of real estate must pay a yearly tax called IPTU, which is also Municipal, and
is charged based on size and price of the land. It also varies depending on the
City the real estate is located.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
43
Legalink – Investments in Commercial Real Property
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes. If the seller brought funds into the country to buy the property and regis-
tered it with the Brazilian Central Bank, then the seller may repatriate the funds
upon sale of the property.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
Purchasing real estate that is leased to third parties may be a tricky opera-
tion in Brazil. The law establishes that, if the real estate is sold while a rental
agreement is in force, the purchaser may terminate the agreement so long as a
90 day prior notice is given to the tenant. Exception is taken, however, when
(i) the agreement is entered for a specific term; and (ii) the agreement provides
for the continuance of the lease in the event the real estate is sold – and (iii) the
agreement is duly registered in the real estate registry. As a practical matter,
though, if the tenant refuses to leave, the purchaser has to file a lawsuit to evict
the tenant, and that may take years. Therefore, although the law provides some
protection to the purchaser of the real estate in the event it has been leased,
the truth is that an eviction suit may take years in Brazil. Aware of that, the
purchaser may find cheaper to look for another real estate.
In addition, it should be noted that the tenant has a thirty-day right of first
refusal to buy the property. The seller must, then, offer the land first to the ten-
ant, and only when the tenant shows no interest in buying the real estate may
the seller sell it to third parties.
Furthermore, special attention should be given if the real estate is being rent-
ed for commercial purposes, in which cases, after five years, the lessee has the
right to have the agreement renewed for a period equal to the term of the last
lease agreement entered into by the parties.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
44
Brazil
The destination of land in the country is delegated to each City Hall. Each
City Hall designs a zoning plan, identifying which areas shall be dedicated to
commerce, living, agriculture, touristic attractions. This pre definition may be
changed, but each case must be analyzed individually, after a formal request is
made to the City Hall
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– Estate agent?
– Others?
Notarial costs and expenses charged vary from State to State, but in general
the purchaser should be prepared (i) to pay around 2% of the amount of the
real estate as ITBI tax; (ii) expenses with the execution of the deed of purchase
and sale and registration thereof with the real estate register; (iii) attorneys’
fees (which, of course, varies, but in general are charged by the hour); and (iv)
around 6% as real estate broker’s fees; (v) expenses to obtain good standing
certificates if the seller does not pay for them (these last expenses are negli-
gible).
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Land owners must pay a City tax called IPTU, as described in item II, above.
This is a yearly tax charged on the price of the real estate, and usually ranges
from zero to four percent of the value of the land. In some cases, this tax may
be waived if, for example, the building is declared as a historic landmark.
45
Legalink – Investments in Commercial Real Property
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Real estate brokers usually charge 5% of the value of the real estate.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
Although the price of real estate has risen at an unusual rate in the past five
years, real estate is still a good and safe investment in the country – especially
considering that Brazil was barely financially harmed by the crisis.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Yes, any individual person or legal entity is allowed to buy property in Brazil.
However, some restrictions may apply. For example, land close to borders with
other countries usually cannot be owned by foreigners. Another example is the
percentage of rural land owned by foreigners, which is also limited by State.
Until 1971 there was a statute in force, which imposed several restrictions on the
ownership of rural land by foreigners, either individuals or companies. In 1994
the Federal Attorney Office issued an opinion in the sense that this statute was
in contradiction with the 1988 Constitution and as such was deemed unconstitu-
tional. Recently the same Federal Attorney Office changed its position and has
submitted to the Executive Branch a new opinion revalidating the 1971 statute,
which was sanctioned by the President just this August of 2010. Due to this
new interpretation of the law, purchase of rural land by foreigners or companies
owned by foreigners is limited in size. Furthermore, the total amount of land
owned by foreigners and Brazilian companies owned by foreigners may not add
46
Brazil
to more than 25 percent of the area of the City. Several entities are challenging
this interpretation of the law, alleging the restrictions are not constitutional. The
basis for the challenges is that Brazilian law does not make any distinction be-
tween a Brazilian company owned by Brazilians and one owned by foreigners.
Therefore, there should be no distinction when it comes to companies purchasing
land either, whether they are owned by Brazilians or foreigners. The results of
these challenges are yet to be seen.
It should also be noted that all foreign persons and companies wishing to buy
land in the country must have a registration with the Ministry of Finance, and a
taxpayer number assigned to them.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Yes, we are in a position to aid clients with all aspects involved with finding
and purchasing real estate, and developing construction projects. However, due
to the situation stressed in the foot note, it is advisable to await its outcome
before buying rural land in Brazil.
47
Legalink – Investments in Commercial Real Property
Canada
48
Canada
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In Canada, real estate transactions are governed by both provincial and mu-
nicipal laws, which vary from province to province. In addition, common law
comes into play in all of Canada’s provinces and territories, except Quebec.
Quebec is governed by its own Civil Code. The following is a general descrip-
tion of commercial real property transactions in the province of Ontario, Can-
ada’s largest province. This description is broadly applicable to the provincial
jurisdictions, with some exceptions, particularly in Quebec.
The “closing” is the point at which ownership and usually possession of the
property is formally transferred from the seller to the buyer. It takes place after
the parties involved agree that all legal and financial obligations have been met.
The following is a description of the typical process:
– Most properties are sold through real estate brokers and agents who market
real property through organized real estate boards. The buying process begins
with a purchaser selecting a suitable property, usually shown to the buyer by a
real estate agent or broker, and making a written offer to purchase the property
which is submitted to the seller. The written offer sets out the price the buyer is
willing to pay, as well as any other terms of the transaction, such as financing
terms, title and environmental conditions and warranties.
– The offer to purchase will be prepared by one of the agents or brokers or, de-
pending on the complexity of the transaction, by the buyer’s lawyer.
– After any conditions have been met, the buyer’s lawyer will search title to the
property. This is an exercise of going back through government records to en-
sure a clear title that is transferable. Electronic registration and title insurance
have significantly changed the way titles on properties are transferred.
– In some complex and/or multi-property transactions, both parties and their law-
yers will meet on the date of closing to complete and exchange documents,
closing funds and keys, although the norm is now for the parties through their
lawyers to exchange documents and closing funds on or before closing, to be
held in escrow until the transfer/deed of land is released and registered in the
appropriate property register. The buyer is entitled to possession of the prop-
erty from the time the transfer/deed is registered. The state of the title to the
49
Legalink – Investments in Commercial Real Property
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes, the legal systems in Canada allow for the ownership of the whole of a
parcel of land and ownership of only portions of the land, such as a unit in a
condominium. Examples of types of ownership permitted are:
– freehold
– leasehold
– time share
– condominiums: freehold condominiums, common elements condominiums,
vacant land condominiums, leasehold condominiums
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, title to real property in Ontario, and generally in Canada, can be held
jointly. However, there are several ways of owning property. Ownership may
be by one individual, multiple individuals, corporations, partnerships, or by
trustees. The various methods of ownership can be distinguished as follows:
Joint Tenants: Title may be held by two or more individuals as joint tenants.
Where there is a joint tenancy, upon the death of any one of the joint tenants,
the deceased’s interest automatically passes to the surviving joint tenants in
equal shares. Where title is held jointly, each joint tenant has an equal interest
in the whole title.
Tenants In Common: Two or more individuals, corporations or partnerships
may take title as tenants in common. Where title is held as tenants in common,
upon the death of one party, the property becomes part of his or her estate and
does not pass by survivorship to the other tenant(s) in common. Tenants in
common may hold varying interests in the property.
A tenant in common is free to sell or transfer its interest in the property to a
third party, subject to any prior agreement among the tenants in common.
50
Canada
51
Legalink – Investments in Commercial Real Property
is situated, and common areas that serve the individual units, are referred to as
“common elements” and are owned by the unit owners as tenants in common.
Ground Leases: Land may be held under a ground lease in cases where an
owner, often municipal or institutional, is unwilling to relinquish its ownership
interest in a key parcel of real estate, but may be willing to lease it. Under a
typical ground lease, the tenant is solely responsible for all capital and operat-
ing costs and has the right to construct buildings on the property, which remain
the property of the tenant throughout the term, reverting to the landowner only
upon expiration of the lease. The term of the lease may extend for a lengthy pe-
riod of time, often as long as 99 years, but more often for less than 50 years.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
In all jurisdictions in Canada, there are established property registers for the
registration of transfers/deeds, mortgages and other real property instruments.
Registration is deemed “actual notice” to any subsequent purchaser or encum-
brancer who might otherwise claim to be a good faith purchaser without no-
tice.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Land transfer taxes are payable by the buyer in most provinces of Canada (not
in Alberta or rural Nova Scotia or Saskatchewan) upon the transfer of real pro-
perty interests, whether registered or unregistered, and on the creation of long
term leases, whether the buyer is a Canadian resident or not. The rates of tax
vary from province to province, but they are generally 1% of the first $200,000
of the value of the consideration for the transaction and 2% of the remainder.
In addition, in most provinces a federal goods and services tax (“GST”) is pay-
able on a “supply” of real property. A supply includes the sale of a real property
(other than used residential), as well as a lease. However, if the purchasing
entity is registered for the purposes of GST, the ultimate effect will be that the
buyer does not pay GST. If personal property is included in the transaction, in
certain provinces a retail sales tax (“PST”) (in some provinces PST has been
52
Canada
combined with GST and collected as a Harmonized Sales Tax) will be payable
by the purchaser on the value of the personal property.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
It is not a problem to buy and sell property on a short term basis. The tax
treatment is the same regardless of the length of ownership.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
53
Legalink – Investments in Commercial Real Property
A purchaser of leased real property steps into the shoes of the seller and
becomes the landlord under the lease and is subject to all of the landlord’s
obligations under the lease.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
In all built-up areas of Canada, the use of a property is dictated by the zon-
ing by-laws of the municipality in which the property is located. If a property
is zoned to permit multiple uses, in this case, both residential or office space,
official approval from the municipality would not be required. If the property
was zoned to permit only residential use, an application would have to be made
to the municipality requesting a change in the use of the property.
Each municipality has its own building by-laws which specify structural re-
quirements for different types of property. A change in use from residential to
office space would also have to comply with the building by-law so far as the
new use is concerned.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
– Notarial costs are not a factor in Canadian real estate transactions, except in
the province of Quebec where notaries are directly involved in the title search
and registration processes. Quebec notaries typically charge by the hour, so the
fees will be governed by the complexity of the title
– The fee to register a deed/transfer or mortgage in the applicable property reg-
ister varies from province to province. As of August, 2010, the fee to register a
transfer/deed of land or mortgage in Ontario is $70.00 Cdn.
– For real property or land transfer tax costs, see section II 1 above.
54
Canada
– Buyer’s lawyer will normally charge by the hour, with the fees being gov-
erned by the complexity of the transaction. Fees ranging between $15,000 and
$25,000 Cdn would be common in a transaction of this magnitude.
– Real estate agents’ fees will vary, but 5 percent of the purchase price would be
the norm and, with some exceptions, are paid by the seller
– if title insurance is obtained, the premium is the buyer’s responsibility. Pre-
miums vary, but are not substantial, being as low as 0.70% of the purchase
price.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
55
Legalink – Investments in Commercial Real Property
– At the moment not because of the impacts of the worldwide financial cri-
sis
The commercial real estate market in Canada is very strong (as of August,
2010). In the first six months of 2010, the value of commercial real estate trans-
actions increased by 60 percent over the same period in 2009 and by more than
22 percent over the same period in 2005, a year more reflective of Canada’s
normal real estate activity. Canadian banks and other lending institutions re-
mained stable throughout the financial crisis, with the result that lending activ-
ity did not dry up or entirely cease as in some other G7 countries. Accordingly,
it appears to be a good time to invest in Canadian real estate, either directly or
indirectly.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
56
Canada
Yes, our firm is able to assist foreign investors acquiring, investing in and
developing real estate in Canada. Please contact Peter Hand at Miller Canfield
at:
57
Legalink – Investments in Commercial Real Property
Chile
Tel: + 56-2-233-3323
Fax: + 56-2-334-4230
jcurquidi@urquidiabogados.cl
www.urquidiabogados.cl
58
Chile
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
The formal procedure in Chile for a real estate transaction is subject to the
Civil Code provisions and whose legal fundamentals are construed upon Ro-
man and French principles of law.
The transaction starts with a thorough and complete legal review of the titles
of property including at least the last 10 years of ownership either by one single
owner or by many different ones. Typically, for this transaction the purchaser
must request original or authorized copies of the following documents:
1. Public deeds reflecting the transference of the real estate property from one
owner to the following one for the term of 10 years computed backwards as of
the date of the last registered public deed.
2. Authorized copies granted by the real estate registrar certifying the fact that
the property is free of liens, encumbrances, mortgages and prohibitions that
otherwise may affect the validity of the real estate transaction.
3. Certificates granted by the local Municipality and Ministry of Housing and
Urbanism that the real estate property is not subject to expropriation plans.
4. Certificate granted by the National Treasury Agency stating that the real estate
property is up to date with territorial taxes.
5. Other specific ad – hoc legal documentation shall be requested by the Pur-
chaser to the Seller upon the fact on whether the real estate property is located
within urban limits or on agricultural lands.
Each real estate transaction between a Selling Party and a Buying Party is
backed up with the granting of a public deed in front of a Public Notary by
the parties involved. Besides, an authorized copy of such public deed shall
be recorded with the Real Estate Registrar being this legal act the ultimate
valid requisite to consider that the ownership on a specific property has been
legally accomplished and therefore the rights on the property vested on the
purchaser.
Consideration must be given to the fact that there are certain elements of the
essence of the legal transaction (“juridical act”) which must be always present
in the respective purchase and sale contract granted by means of a public deed,
namely, free consent or will by the parties to sell and buy, respectively; the
59
Legalink – Investments in Commercial Real Property
object matter of the transaction and the agreed price. Under the absence of one
of these elements the real estate transaction shall be deemed as null and void
for all legal purposes.
Taking into account the fact that sometimes due to the nature of the real
estate property transaction an extra term would be required to materialize the
closing in compliance with legal requirements, it is advisable for the parties
involved to enter into a Promise to Purchase and Sell Contract, which shall be
construed upon the legal formalities of being granted in writing, subjected to
a condition or term and deemed legally in full compliance with all prescribed
legal requisites.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes, our legal system does permit different sorts of ownership i.e. for instance
ownership of the whole land and/or rights of property of specific units or lots.
This is specifically abided by an ad – hoc regulation passed and approved by
the investors (“project developers”) of the real estate project prior to the com-
mencement of the selling procedures and accepted by the purchasers jointly at
the time of executing the respective contract through a public deed in front of
a Public Notary.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, the legal system of the country does accept and permit joint ownership of
real estate property by two or even more owners. Ownership may be exercised
upon the real estate property as a whole or upon an ideal quota or percentage
by one or more owners.
However, the law does not favour the maintenance of mere communities of
hairs or of any different class or nature formed by the ministry of law or by a
simple fact thus remaining as joint owners of a community holding title upon
a real estate property for a long period of time. Therefore, any of the hairs or
successors of a quota or percentage of rights of a real estate property owned
in common as a community may request the liquidation of the community
60
Chile
anytime with a Civil Judge. The Judge will assign individual ownership on the
common ownership of a real estate property.
Owners of a real estate property can be any person or entity. Natural persons
must be in compliance with civil law demands in terms of age and legal stand-
ing. On its absence legal authorization to be granted by a Judge is mandatory
as well as suffice economical capability is also a must.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes, the real estate property integrated by the land and building erected on
it as well as the single ownership expressed in a percentage of rights or even
sometimes shares, as described above, must be recorded with the Real Estate
Registry as this is the only legal requisite that once fulfilled trespasses title and
risk to the purchaser from the seller.
A good faith purchaser is protected by law, but legal counsel advice is recom-
mendable as article 1815 of the Chilean Code prescribes that the selling and
purchasing of an alien real estate property is valid without prejudice of those
rights belonging to the legitimate owner.
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Legalink – Investments in Commercial Real Property
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
From a taxation point of view, in Chile the general rule is that there is no
problem to hold the property for a specific time span as real estate transactions
are not subject or sole to tax payments. However, the local Income Tax Law
provides that if more than one transaction on real estate property is executed by
the same owner within the same calendar year (Fiscal Tax Year) then the price
difference (higher value or price) including the respective price escalation of
the price remainder shall be declared as a taxable income by the selling party.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes, monies arising from a real estate transaction may be repatriated anytime
and without legal restraints as long as the legal formalities at the time of bring-
ing the funds into the country have satisfactorily complied from a legal point
of view. This is achieved by either entering into a Contract Law with the State
of Chile (Decree Law 600 – Foreign Investment Statute) or by means of Chap-
ter XIV of Chilean Central Bank Norms on International Exchange Currency
Regulations.
62
Chile
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
– notarial costs: Customary a 0,01% upon commercial value of real estate prop-
erty is paid for this concept.
– land register: Customary a 0,2% upon commercial value of real estate value is
paid for this concept.
– real property transfer tax: N/A
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Legalink – Investments in Commercial Real Property
– advising lawyer (due diligence): Legal costs and fees should not exceed 1,5%
of the total transaction value with a cap that is normally agreed on a case by
case basis.
– estate agent: Customary a 2% commission fee on real estate property price is
paid for this concept.
– others: N/A
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
This kind of costs will vary depending on the size and nature of the real es-
tate property purchased by a foreign investor. It shall be agreed on a case by
case basis but normally adjusted to competitive market conditions to be agreed
thereupon.
In general charges due to this concept are around 5% - 7% of the leasing
contractual arrangements.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial cri-
sis
64
Chile
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
For green field projects and depending on the size of the business or invest-
ment planned by the foreign investor it may be required to prepare and file
an environmental impact study or statement. Besides it will also be required
to obtain all related sectoral permits which shall be granted by the respective
governmental agency or service as it may be applicable.
Regularly a construction provisional permit shall be granted by the Direc-
tion of Municipal Works and with which the owner of the project is entitled to
commence construction. Definitive construction permit shall be granted after
having the municipality inspect and receive the final works on the real estate
property.
For real estate property already constructed and fully operational there is no
need to request new official approvals other than those obtained whilst being
urbanized, constructed and sold to new buyers.
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Legalink – Investments in Commercial Real Property
Our law firm is in position to render services in all and any business related
front of the real estate property developments and acquisitions. We also may
find interesting real estate products tom either develop projects or purchases
with good investments returns. This may be extended also to agricultural lands
and haciendas which historically have had a steady and incremental investment
return.
66
Chile
67
Legalink – Investments in Commercial Real Property
Colombia
Tel: +57-1-218-6366
Fax: +57-1-610-9451
www.wiesnerasociados.com
68
Colombia
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Under Colombian law, buildings with multiple units, like residential apart-
ments, condominiums or malls are subject to an ownership regime known as
horizontal property. Each individual unit has its own registry at the Registry
Office and property over it vests exclusively on the registered owner, who has
full rights over the unit.
At the same time the owner of the unit has an undivided ideal quota or share
over the communal property (like the entrance lobby, the stairs or the roof) and
every owner has a right of use over the communal property and a duty to cover
the expenses. If the building which contains the units is destroyed, then all the
69
Legalink – Investments in Commercial Real Property
unit owners share the property over the land, with each owner retaining the
same quota it had over the communal property over the vacant land.
Joint ownership is also allowed for multi-property (multipropiedad), the legal
term for time share properties, in which each owner has title over a share of the
property and rights to its exclusive use during a predetermined time.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, joint ownership is permitted and both individuals and legal entities, such
as corporations, can acquire and hold real estate.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
The real estate Public Registry Office of the area where the property is lo-
cated is the only office authorized to make changes into the property registry.
Non registered transactions are not binding on third parties.
Both the land and buildings are covered by the real estate registry and it
should be noted that easements, mortgages and other events regarding real
estate have to be registered therein.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
There are three relevant taxes to keep in mind: (i) the income tax withhold-
ing set at 1% of the value of the transaction or the official value of the land,
whichever is higher, (ii) the registry tax which is set at 5 x 1000 of the value
70
Colombia
of the transaction and, (iii) the so called charitable tax set at 1% of the value
of the transaction.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Under Colombian tax law if the property is sold within two years of its ac-
quisition the profits of the sale are subject to income tax. If the property is
sold after two years of its acquisition then it is subject to occasional gains tax.
Although both income tax and the occasional gain tax have the same rate (33%
for corporations and 19% to 33% for individuals), the tax payer can claim
some benefits under the income tax regime and reduce the payable amount,
whereas the occasional gain tax does not allow any benefit claims. Hence, if
the property is sold within two yeast of its acquisition it is possible to reduce
the tax consequences.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
Termination of the lease agreement is allowed but there are certain conditions
that have to be met: (i) the lease contract can be terminated only at the end of
the lease term or one of its extensions, (ii) notice of the intention of terminating
the lease has to be sent three months in advance of the termination date, (iii)
71
Legalink – Investments in Commercial Real Property
the stated reason for termination has to be the performance of an obligation set
forth by a purchase agreement and (iv) attached to the termination notice there
should be a copy of a bond issued in favour of the leaseholder, valid for six
months, with a value equal to six months of the lease, to ensure that the stated
reason for termination is true.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
Notarial costs change every year and are established by the National Super-
intendence of Notaries and Registry. For 2010 a transaction with a price set at
EUR 5 million it would pay EUR 13,500 (2.7/1000 of the transaction value) as
notarial costs. The registry of the deed would cost EUR 75,000 (EUR 25,000
for the registry tax and EUR 50,000 for the charitable tax). If the parties are re-
quired by law to pay the income withholding tax, then such tax would amount
to EUR 50,000.
The real estate agent commission can be negotiated but it would be at least
equal to 3% of the transaction value if the land is considered urban and 5% if
the land is considered rural. Hence for the hypothetical transaction if the land
is urban, the real estate agent would charge EUR 150,000 at least, and if the
72
Colombia
property bought is considered rural at least EUR 250,000. Attorneys fees can
be charged either at an hourly rate or as a flat fee encompassing all required
work. For a transaction as the one proposed, the value of the fees would likely
be of around US$10,000.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Property tax is levied by local governments. The tax rate depends on multi-
ple factors such as where the property is located and its use. The value of the
property, for tax purposes, is determined by the tax payer but cannot be lower
than that which is determined by the land registry (catastro). Since the land
registry is not updated every year it is not uncommon for commercial prices to
be higher than the ones used to assess the property tax. Conversely, when the
land registry is updated the value of the property will have big increases.
Besides the annual land tax, properties served by public services such as wa-
ter, electricity and gas may have to pay a minimum consumption charge on
monthly or bimonthly basis. It also usual for local government to levy spe-
cial taxes to pay for improvement works near the property such as roads and
bridges. Local governments can also levy taxes over the capital gain or added
value (plusvalía) gain by the property owner because of public works made in
the immediacy of the property. The capital gain or added value tax although
authorized by law has rarely been used.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Professional caretakers are commonly real estate agencies and charge for
their services a monthly percentage over the lease they secure for the prop-
erty. The real estate agencies offer different services ranging from showing the
property to prospective clients, to administration packages. The usual monthly
percentage is set at about 8% and may increase if the owner chooses to buy
certain insurance coverage offered by the insurance companies through the real
estate agencies.
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Legalink – Investments in Commercial Real Property
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial cri-
sis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
If the buyer plans to build in the plot of land it will need to secure a construc-
tion license by filing a request in a local government office (curaduría urbana)
and paying a tax. Blueprints are also reviewed in the licensing procedure which
may take up to three (3) months.
If the building is already in place, and the plot of land is considered com-
mercial under the zoning plan, if the plan business involves the opening of a
commercial establishment the following steps have to be followed:
– Comply with zoning regulations, including noise level rules and hours of op-
eration provisions.
74
Colombia
75
Legalink – Investments in Commercial Real Property
Costa Rica
LEX Counsel
76
Costa Rica
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
77
Legalink – Investments in Commercial Real Property
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. Ownership of any construction over the land is presumed owned by the
owner of the land. However, land can be rented for purposes of allowing a third
party to build some construction over it. A detailed contract should be drafted,
signed and recorded, to prevent that the owner of the land would be considered
the owner of the building.
This is very seldom done, though.
78
Costa Rica
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Tax aspects directly involved in a purchase of real property are the transfer tax
and the stamp duties that have to be paid in order to register the property in the
name of the new owner, at the National Property Registry. These amounts are
calculated on the basis of the highest value between the stated purchase price
and the property value appearing at the National Property Registry. Transfer
tax is a 1.5% of said amount, and shall be paid during the 3 months after the
signature of the transfer deed. The stamps duties are: National Registry: 0.5%,
Municipal Stamp: 0.2%, Fiscal Stamp: ¢625.00 –amount equivalent slightly
over one US Dollar (US $1), Agrarian Stamp: 0.1%, Costa Rican Bar Asso-
ciation: ¢10,000.00 (about US $20) for deeds over ¢10,000,000.00., National
Archive: ¢20.00 (about five US cents).
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
You are entitled to buy and sell even the same day. The same cost is –none-
theless- incurred. Sometimes, if the property is going to be owned by a short
time, transaction costs are reduced by using a Trust Agreement. A different,
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Legalink – Investments in Commercial Real Property
but related issue, is Capital Gains Tax. In Costa Rica, Capital Gains Tax is ap-
plicable only if the seller is dedicated to buy and sell properties (therefore not
applicable to most of the transactions incurred by an owner that is not a profes-
sional developer, and its buyer. Capital Gains tax also applies to transactions
incurred by non professional developers, but only over the increase on the
value of constructions affixed to the land (as they might have been “depreci-
ated” for Income Tax purposes).
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Yes, you are authorized if the zoning regulations applying to the area where it is
located authorizes both uses. Zoning Regulations –approved by the correspond-
ing county government (municipality)- are approved after public hearings, etc.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
80
Costa Rica
Notarial fees would be of 1% of the purchase price. Land registration and real
property transfer tax and stamps, as stated above, are also set by percentage
of the property purchase price (see table attached at an independent document
–excel to facilitate using in with other real estate values). These costs are usu-
ally split between buyer and seller.
The fees of the advising lawyer are generally charged by the hour, and it may
vary from one law firm to other. They can also be negotiated, considering the
complexity of the transaction (whether the property has liens or encumbrances,
or the other registrar’s entries that need to be studied, etc.)
Fees charged by real estate agents are not established by law. However, the
parties should be keen to negotiate in advance, as otherwise 5% of the transac-
tion is the customary amount.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
The Real Estate tax is charged by the County Government. The rate is 0.25%
of the assessed value. The assessed value is determined either by following
the sworn declaration of the owner (contestable by the Municipality), of by
direct valuation rendered by the Municipality contestable by the owner. We
always advise the later. Usually these valuations are lower than the value that
the owner renders to its own property. No special assessments are customary,
not even in reason of building a road nearby, etc.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
It depends of the type of property. For a vacant lot the owner is required to
have it clean and well fenced. These services are rendered, generally, by in-
dividuals (farmers, for instance). They charge about four dollars (US$4) per
square meter per year, which includes maintaining the fence (cost of fence wire
and related expenses are paid separately), and clearing the grass twice a year.
If the property is a building (and office complex for rentals, for instance), there
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Legalink – Investments in Commercial Real Property
are specialized companies. The cost in these cases is about three dollars (US$3)
per square meter per month, which is recuperated from the tenant.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
– directly in real estate or provide the company, its maintenance, etc: Usu-
ally we advise to own property through a company. It will be more advanta-
geous regarding taxes and inheritance transfers, etc.
– through real property funds, open or closed ones: We have those funds.
However, owning property in Costa Rica is simple and –moreover, I personally
prefer to control by my own decisions regarding real estate that I may own.
Therefore, I advise our clients accordingly.
– through other clear and secure financial products: Besides open and close
funds, we do not have other “financial” products to own real estate. Some
developers (mainly in the tourism sector) sell “participations” in the project
b selling preferred shares. However, attention should be given to the strict
regulations for public offerings that we have and that generally exist at other
countries where these projects might be marketed.
– at the moment not because of the impacts of the world wide financial crisis:
Contrary to the common belief, now it appears a good time to invest in these
developments. Prices have plunged and most of the ongoing developments (at
least those that we advise – I will send you separately some information on
them) have used this “financial crisis” to slow the pace, improve the conditions
of their own projects (re-designing, using alternative and “green” sources of
energy and “green” methods of building, etc.). Remember the “old say”: “Buy
land, God is not making anymore” (and specially, ocean front property in Costa
Rica).
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
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Costa Rica
Titled land may be owned without restrictions on nationality, etc. Taxes are
the same for locals and foreigners. The only restriction for foreigners is regard-
ing concession land (some land located within the first 200 meters from the
ocean, at both coasts). In these cases, foreigners should have resided in Costa
Rica for at least 5 years to be eligible for those concessions. In these restricted
cases, some foreigners have selected to use a Trust Agreement (ownership of
the concession is maintained in that trust and the foreigner is kept as benefi-
ciary of the rights until local nationality or the 5 years residence is achieved).
Also, there are some limitations at a strip close to our borders with neighboring
countries.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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Legalink – Investments in Commercial Real Property
ests (defending our clients), but also know that we will do our best to achieve
the best possible transaction for our client.
– Developing construction projects: Yes. We have been behind the most repu-
table developments of Costa Rica (the two Marriott projects, the Papagayo
tourism Project, etc.), sometimes on the side of the developer, sometimes ad-
vising the bank or financial entity that financed the project. Also, our firm has
handled ALL the projects that involve public works under private concession
(highways, airports, sea ports).
– All legal aspects involved in these contexts: Yes. Public Works under Private
Concession is a good example: This is a very specialized sector where you
need to advise since the drafting of the cartel papers, the bidding process, the
usual appeals, the negotiation with the Government for the contracts, and the
execution phase.
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Costa Rica
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Cyprus
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Cyprus
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Regulation
There are six District Land Registries in the Republic of Cyprus and any land
is registered at one of the six registries, according to the district in which it is
located. Similarly any charge or right attached to land is only valid if registered
at the corresponding District Land Registry.
Real estate transactions in the Republic of Cyprus are regulated by a nexus
of statutes. At the centre of this body of legislation, is the Immovable Property
Act, commonly referred to as Cap. 224.
Notaries are used to notarise the contracts of purchase which have to be duly
stamped and submitted to the Registrar.
Another feature of Cyprus real estate law is the recognition and enforcement
of ‘specific performance’ orders as per The Sale of Land (Specific Perfor-
mance) Law Cap.232. This law serves to hold both the Seller and the Buyer to
their respective promises in connection with a transaction relating to land. In
a broader context this feature provides a safeguard for the materialisation of
investments in real estate.
Procedure
The procedure for purchasing immovable property commences with the sign-
ing of a purchase agreement commonly drafted by an advocate or by a real
estate agent. Ordinarily at this stage the Buyer has to pay the Seller a ‘reserva-
tion fee’, which is later deducted from the total cost of the purchased plot or
structure however, this arrangement is not “cast in stone” and can be varied
subject to the respective wishes of the parties and their final agreement. The
benefit of this practice is that it binds the Seller to the promise to sell to the
Buyer who has in turn given due consideration. This promise is actionable and
sounds in damages for breach of contract. It must however be noted that spe-
cific enforcement of the agreement to sell and transfer land in the name of the
Purchaser can only be achieved under and subject to the provisions of the Sale
of Land (Specific Performance) Law Cap. 232 (see above).
The value of land is found on the face of the title deed but is fixed at a particu-
lar date (1.1.1980) and is therefore certainly not representative of the market
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value. To remedy this, the most commonly used practice is to employ the ser-
vices of an independent chartered surveyor to conduct relevant evaluation and
provide the parties with a report.
Summarily, the contract of sale contains clauses such as a description of the
plot or structure to be purchased, the amount to be paid and method of pay-
ment, the finance institution or means which will facilitate payment, the esti-
mated time of completion and the technical specifications (in cases of construc-
tion) and provision for payment of notary, estate agency, transfer, registration
fees and taxation.
The contract of sale is subsequently notarized, sealed and submitted to the
District Land Registry according to the District in which the plot or building
is situated. The process of sale and transfer is complete at the time when the
Land Registry issues a title deed in the name of the Buyer. It is not uncommon
for a proportion of the total payment to be withheld by the Buyer pending the
aforementioned issuing, thus ensuring simultaneous fulfillment of the parties’
respective obligations.
Finance
Cyprus law and banking practice recognise and permit purchase and simul-
taneous mortgaging of the purchased real estate. More than one mortgage or
charge can attach to land. Mortgages and charges take priority as of the date of
their Registration.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Cyprus land law recognises different kinds of title in land ownership. The
Immovable Property Law (Cap.224) in conjunction with the Regulation of
Roads and Buildings Law, comprise the legal framework for the division and
ownership of land in units. Recent developments and population growth has
seen this kind of ownership flourish over the past two decades. Commonly held
buildings are a prime example of this, where title holders own individual units
(flats or apartments) but also hold certain areas in common. Leasehold title is
also valid and capable of registration in Cyprus.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
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Cyprus
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
As aforesaid land and buildings are and should be registered with the afore-
mentioned District Land Registries and good faith purchasers are protected
with regard to this.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
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Transfer tax is ordinarily paid by the Buyer, is proportional to the sale value
of the land and is payable at the time of transfer of real estate in the Buyer’s
name. For transactions up to €85.430,10 there is a 3% transfer tax, for transac-
tions between €85.430,10 and €170.860,14 transfer tax is at 5% and finally for
transactions over €170.860,14 it rises to 8%. VAT at 15% is has to also be paid
on the transaction.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Cyprus does not have Exchange Control Rules therefore no restrictions apply
with respect to repatriation of funds.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
There is a procedure in place when the new owner of property may apply for
a court order to evict the lessee so that the property can be used by the new
owner. Such an order will however only be granted for re-development pur-
poses. In such a case it is not unusual for the Court to either oblige the owner/
landlord to offer a similar space to the tenant in the new development or to
order the payment of compensation, up to a maximum of one year’s current
rental.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
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Cyprus
offices as well, although some restrictions as to usage may apply and approval
from the city council may be required, particularly with regard to operating
businesses and therefore Buyers should inquire of this.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
Due to the impact of the financial crisis, sales of residential property have
dropped in value some 25%, with commercial property remaining static over
the past two years. Therefore direct investment is wiser for the forceable future
in Cyprus,
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Foreign nationals and companies, that is non EU national and companies con-
trolled by non EU nationals, can own real estate with some restriction as to the
size of the plot and permission from the Council of Ministers is required.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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Cyprus
NOTE: It should be noted that all information given above relates to the
part of Cyprus under the control and administration of the government of the
Republic of Cyprus. All transactions relating to land in the occupied sector
of Cyprus, the so called ‘‘Turkish Republic of Northern Cyprus‘‘; are to be
avoided as such transactions are subject to claims and legal actions by the
original dispossessed Greek – Cypriot owners.
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Legalink – Investments in Commercial Real Property
Czech Republic
U Nikolajky 5
150 00 Praha 5
The Czech Republic
94
Czech Republic
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Transferring of the real estate is in the Czech Republic formally bound with
the registration of each transfer or other disposition with the real estate into the
Real Estate Cadastre.
Real Estate Cadastre:
The Real Estate Cadastre contains information regarding all real estate prop-
erty (except for small structures) in the Czech Republic. The registered and
publicly accessible information include:
– size of the land;
– evidence number of the land;
– manner of use of the land (arable land, pasture, orchard, built-up land etc);
– evidence number of the building;
– if the building is divided to units (flats);
– owner/s of the land, building or unit;
– exact location of the property in the cadastre map;
– encumbrances of the property;
– evidence of the titles on the basis of which changes to the registration of the
property were done in the past;
– details regarding changes of ownership or other rights to the property.
All information in the Real Estate Cadastre is held in the electronic form
and data are accessible to the general public via internet access (http://nahli-
zenidokn.cuzk.cz/) free of charge. An access is possible also via Google maps
application at (http://www.katastr2.cz/). Notaries and attorneys at law can con-
duct an extended search in the Cadastre which includes search of all properties
owned by certain individual, details of encumbrances etc.
Transfer of the property:
The formal transfer procedure in respect of the real estate property in the
Czech Republic is quite simple. The purchase agreement shall include formally
perfect definition of the real estate property, expression of the will of the par-
ties to transfer the property and the purchase price. The purchase agreement is
usually drafted by a lawyer or a notary public however parties may also draft
the purchase agreement by themselves. The signatures of the parties must be
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Legalink – Investments in Commercial Real Property
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Czech Republic
cally released by the bank after the priority notice in respect of the pledge and the
priority notice in respect of the title transfer is marked in the Cadastre.
Time period of transaction:
The normal time period of a property deal very much depends on the size of the
deal and financing used by the buyer. Apartment purchases where a buyer pays
the purchase price from equity are often agreed and the purchase agreement is
signed within few days. Subsequent registration of title transfer takes up to 30
days as described above. Provided a buyer uses bank financing, the parties of-
ten enter into the agreement on future purchase agreement first which gives the
buyer an exclusivity – typically 30 to 60 days - to negotiate the bank financing.
It is recommendable that a buyer completes a legal due diligence before the
purchase of the targeted real estate. Depending on the size of the deal the facts
listed below can be checked either via on-line search in the Cadastre (only up
to date information are available online) or through more time and money de-
manding search in the Cadastral Archive where all prior title documents can be
reviewed by any prospective buyer, check with the Land Authority which deals
with restitution claims (requests by former owners for returning of nationalized
property), insolvency registry etc.:
– the seller holds a free and clear, valid and marketable ownership title. In order to
avoid any risk of rescinding the transaction, the buyer shall verify that the seller
is and his predecessors have been the valid owners of the respective real estate;
– there are no registered or unregistered or contractual mortgages, encumbrances,
possession, easements and other liens on the targeted real estate. The law pro-
vides that liens and encumbrances once registered and valid as in-rem-rights,
can be enforced against the new owner of the real estate if the sale transaction
has been accomplished after the registration of the liens or the encumbrances
with the land register;
– there are no lease agreements, no pending court restitutions, enterprise pledges,
limited property rights established in favour of third parties, no injunctions or
claims against the real estate and complaints before court or the competent cadas-
tre body (such as pending execution proceeding or insolvency proceeding).
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
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Legalink – Investments in Commercial Real Property
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your country?
The Czech system knows joint ownership. There can be physical or juridical
persons holding a property jointly by percentages they can freely choose.
Under the Czech legal system (Civil Code) a building is not part of the land
which means that any building or plot can have different owners.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal register?
All land is registered in the Real Estate Cadastre and can be transferred only
via registration of the purchase agreement or other title transfer document in
the Real Estate Cadastre. All constructions over 16m2 of built up area are reg-
istered in the Real Estate Cadastre and can be transferred only via registration
of title transfer document in the Cadastre.
Due to a complicated history of the ownership in the Czech Republic it can
happen that an ownership title to real estate can be disputed though it is duly
registered in the Real Estate Cadastre. In case a seller is not an owner of the
Property (though his title is registered in the Real Estate Cadastre); the owner-
ship title may not be transferred to the buyer.
Despite the fact that anyone may in good faith rely on an entry made in the
Real Estate Cadastre after January 1, 1993, unless proven otherwise, there is
no 100% guarantee that the records in the Real Estate Cadastre are accurate
or that the registered owner of a building or land actually has a title to it. All
titles are, to some extent, subject to challenge. According to the Czech law
there is not possible to acquire an ownership from a person who is not a real
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Czech Republic
owner though his ownership is duly registered in the Real Estate Cadastre.
This happens namely in connection with the “restitution” of the ownership to
original owners whose property was confiscated after the WWII (during the
period 1948-1989). The problems often arise when the property was privatized
in 90’ without regards to the possible rights of the original owners who were
entitled to get the property back. The persons who obtained the property in
privatization thus obtained the property from the non-owners and if original
owners later filed their claims for restitution of the property, their ownership
was duly registered.
The above risks can be excluded by executing a legal due diligence of the
vendor’s title before the purchase.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
The real property transfer tax has to be paid on real property transactions.
The percentage rate is 3 % and it shall be paid from the higher of (i) the agreed
purchase price or (ii) expert valuation of the property. The tax is payable by
the seller but the purchaser is a guarantor. The tax shall be paid within three
months after the registration of a purchaser’s title in the Cadastre.
There are several exemptions from the real estate transfer tax, namely trans-
fers of the property from the state, transfer of the property to the company as
a contribution in kind, transfer of the property by cooperatives to its members
and first transfers of the newly built buildings.
The sale of land is subject to VAT; however only if it is a construction site for
which a building permit has been issued. Buildings are subject to VAT if sold
less than 5 years after completion.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Income from a sale of real estate property is subject to income tax (difference
between the income and costs is taxable by 15%) but several exemptions apply.
Individuals who hold the property for more than five years (two years if they
used the property for their accommodation) are tax exempt.
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Legalink – Investments in Commercial Real Property
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
In general the rule is that a purchase of a property does not break the lease con-
tract. Lease agreements for non-residential premises signed before 2004 allow
tenants to terminate the lease in the event of change of the landlord. This rule ap-
plies further in respect of all leases of the land (without signing date limitation).
Lease of flats has been highly protected in the Czech Republic however the
relevant laws are being changed gradually. Still in case of so called regulated
tenancy termination by a landlord is possible only in the event of breach by
a tenant. Lease of flats under regulated tenancy can also be inherited which
means it is very difficult for the landlord to terminate leases concluded for
indefinite period of time. Regulated rents were extremely low; legislation has
allowed landlords to increase the rent unilaterally since 2007 and has stipulated
certain rules to achieve market rent by 2012.
10. Are you allowed to change the use of a building from residential use to office
space or do you need official approval for doing so or is it not allowed at all?
Even if a change of use of a building suits to all technical and health require-
ments an official approval is necessary. A building authority shall issue a new
using permit for a respective building, i.e. defining a new specification of the
building which shall suit to all requirements. Such a procedure can take 1-3
months to complete.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
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Czech Republic
– estate agent?
– others
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
The owner of the property has to pay the property tax annually. The tax is cal-
culated based on the size and location of the property. The municipalities may
set different multipliers. Generally the property tax is quite low in the Czech
Republic and doesn’t exceed 0.5% of the market value of the property even if
there are the highest multipliers.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
This differs from the property and the number of tenants. In commercial real
estate you can grossly calculate about 2% of the net rent of the object per
month
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14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
The agricultural land and woodlands can be purchased only by Czech citi-
zens, companies registered in the Czech Republic and EU citizens who are reg-
istered as farmers in the Czech Republic. It should be noted that any foreigner
can register a company in the Czech Republic and use it for purchase of the
agricultural land. There are no restrictions in respect of other properties.
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Czech Republic
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
The rules for use of land are the same for Czech residents and foreigners.
No special permits are needed if an investor is a foreigner (save for the above
restriction to buy agricultural land).
All foreigners who want to run their businesses in the Czech Republic shall
comply with the general regulation concerning foreigner’s business in the
Czech Republic. Investors from EU member states mostly need only to notify
the authorities about their business activity in the Czech Republic and to sub-
mit an evidence of their license from the country of their registration. Investors
from third countries must comply with specific requirements. In general, any
investor may establish a company in the Czech Republic (the process takes
ca 4 weeks but can be completed also in few hours if an investor purchases a
readymade SPV) which is then treated as a Czech entity to which no restric-
tions apply.
Yes, we are used to assist foreign investors in all these aspects involved.
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Drury House
19 Water Street
Liverpool
L2 0RP
United Kingdom
104
England and Wales
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In England and Wales, details of registered properties are held at the Land
Registry. The Land Registry holds title information relating to registered prop-
erties, including the details of the registered proprietor, the address/description
of the property and details of any registered third party interests such as charges
or covenants, etc. Most leasehold interests also require registration at the Land
Registry. The leasehold interest may be registered under its own title number
at the Land Registry if it is a lease of a term of 7 years or more or if the lease
grants legal easements. The existence of a lease with a term of 3-5 years can be
noted on the register of the freehold title to which is subject to that lease.
There is a move in England and Wales to ensure that any unregistered prop-
erty is now registered and therefore most, if not all, transactions will attract
first registration if they related to unregistered property.
In terms of buying and selling property, prospective purchasers and sellers
may appoint agents or become aware of a property of interest through the in-
ternet, newspapers or other means which may simply include word of mouth.
The parties would normally agree heads of terms between themselves and their
agent (if applicable) setting out the basic terms of the transaction such as the
price to be paid for the property and the date for which completion of the trans-
action is intended. Assuming that both parties have agreed on the above, then
each respective party would normally instruct solicitors or conveyancers to act
on their behalf in relation to the transaction.
There are three basic stages to any property transaction:
1. Pre-contract
2. Exchange & pre-completion
3. Completion
Pre-contract
Under the pre-contract stage, the seller’s solicitor or conveyancer drafts the
contract for negotiation with the buyer’s solicitor and engrosses the agreed
form for signature. It is common for contracts for the sale of commercial prop-
erty to incorporate a set of conditions known as the Standard Commercial
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Legalink – Investments in Commercial Real Property
Property Conditions. Where the sale relates to residential property, the contract
will normally incorporate the Standard Conditions of Sale. The sale contract
itself may disapply or vary certain terms in the Standard Conditions of Sale as
negotiated and agreed by the parties.
In the pre-contract stage, the buyer and his/her solicitor or conveyancer will
be responsible for investigating the property. The buyer will normally find out
about the physical state of the property, either through his/her own enquiries or
through instructing a suitably qualified surveyor. The buyer’s solicitor would
normally investigate the legal title of the property and about any third party
rights affecting the property. As a general rule, the buyer takes responsibility
for investigation through its legal and other advisers who will prepare a report
on the property for the buyer and any bank involved in the financing of the
purchase.
Where a leasehold interest in being acquired, the buyer’s solicitor or con-
veyancer would also need to advise his client of the rights and obligations that
would pass on completion as well as investigating the right of the seller to
grant, assign, or under-let to the buyer.
If there are any defects in title or possible potential liabilities (e.g. chancel re-
pair liablity) which the buyer or its solicitors become aware of in the course of
their enquiries and searches then they may insist on the seller putting in place
insurance in relation to such defects.
If the searches carried out by the buyer’s solicitor bring about any issues then
it is important that these are addressed at this stage before the buyer is com-
mited to purchasing the property. Planning issues, for example, would need
to be addressed pre-contract. The buyer would also require that any notices/
consents under the Environmental Protection Act are identified, produced and
dealt with.
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England and Wales
contracts are exchanged, the buyer has an insurable interest in the property and
risk in the property passes to the buyer. Exchange of contracts therefore marks
the point at which the buyer should insure the property. Where a leasehold in-
terest is being acquired, exchange would be done by way of an agreement for
lease. It is not uncommon however for parties to proceed straight through to
completion or to exchange and complete simultaneously.
Exchange is effectively the ‘point of no return’ for both parties who are now
bound to complete the sale and purchase of the property unless there is a breach
of contract by one party (in which case, the other party may have a right to re-
pudiate the contract).
Pre-completion
The buyer’s solicitor or conveyancer would carry out pre-completion searches
and confirm the practical arrangements for completion with the seller’s solici-
tors.
If not already in an agreed form, the buyer’s solicitor or conveyancer would
draft a transfer in accordance with the contract and would then send it to the
seller’s solicitor or conveyancer for approval. Once in agreed form, the buyer’s
conveyancer would then prepare the engrossment and arranges execution by
the buyer. The buyer’s solicitor or conveyancer would arrange for the transfer
to be signed in readiness for completion and would send it to the seller’s solici-
tor or conveyancer for execution by the seller.
Where the transaction concerns leasehold interests, it may also be necessary
to obtain the consent of a head landlord or bank (where appropriate) in order
for a leasehold interest to be acquired.
If the property is subject to a bank charge, then it is important for the buyer’s
solicitor to obtain an undertaking from the seller’s solicitors that the charge
on the title of the property would be discharged at completion using the sale
proceeds and that the seller’s solicitors would procure a form of discharge from
the bank who had benefited from the charge.
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Post-completion tasks
The buyer must file a Land Transaction Return to notify HM Revenue &
Customs (‚HMRC’) of the transaction and pay stamp duty land tax on the
purchase if applicable. On receipt of the return, HMRC will issue a certificate,
which must be sent to the Land Registry with any application for registration
of the transaction. The amount of stamp duty land tax payable will depend on
the purchase price of the property. The buyer is also responsible for registra-
tion of the transfer at the Land Registry, although in practice their solicitor or
conveyancer is likely to do this. If the property is unregistered, the transfer will
trigger compulsory first registration at the Land Registry.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
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England and Wales
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. In England there are two main types of joint ownership in property,
joint tenants and tenants in common. Under a joint tenant arrangement, each
individual owns the whole of the property as opposed to a share in it. When an
individual dies the properly passes to the surviving joint tenant automatically.
This would be the case even if the deceased person has left a will, the property
will still pass to the surviving tenant. In contrast, where there is ownership as
tenants in common, each owner owns a separate and distinct share in the prop-
erty. On the death of one of the tenants in common, their share can pass to their
chosen beneficiary under a will or otherwise.
Joint tenancy is commonly adopted between married couples, as there is be-
lieved to be no advantage in defining separate shares in the property. Tenancy
in common however can be used in situations between business partners, un-
married couples and even friends as it can be the desired effect for each owner
to be able to leave their share for a specific person other than the other owner
of the property.
Property can be owned by individuals, companies, trusts and partnerships.
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Yes. It is implied that the owner of land owns all of the buildings erected on it
and any mineral rights below the surface of the land. It is possible for mineral
rights in land to be reserved by other parties.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes. The vast majority of land is registered in England and Wales. The Land
Registry maintains and develops the register of title for land and having the
benefit of registration at the Land Registry gives greater security about what is
owned, giving greater protection against claims of adverse possession.
Selling land that is registered can be easier as potential buyers increasingly
expect land to be registered as it simplifies conveyancing, making transactions
easier and with potentially less cost.
On the purchase of land that is unregistered it is essential to find out if the
seller has a good root of title. This can be found in the epitome of title, this is
evidence that the seller has the right to sell the land and that the land is free
from any incumbrances. When unregistered land is purchased, it is likely to
trigger compulsory first registration at the Land Registry.
A bona fida purchaser acting good faith purchaser is protected in regards to
anything that was not published on the registered title of the land, save for
matters or third party interests which do not require registration or noting on
the registered title and would be discoverable on a reasonable inspection of the
property. In order to protect a purchaser as far as possible, his/her solicitor or
conveyancer would make enquiries of the seller and would investigate the title
to the property in order to keep the risk of future problems down.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
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England and Wales
In England, on the sale of land the purchaser has to pay Stamp Duty Land Tax
(SDLT) based on the purchase price.
A guideline as to the current SDLT thresholds in relation to purchases of
freehold land is below:
Where a leasehold interest is being purchased then the calculation for SDLT
payable is much more complicated. The calculation will depend on whether the
leasehold interest is one that is an assignment of an existing lease. In the case
of new leases that have been granted, the calculation will also depend on the
‚premium‘ (the lump sum paid to buy a new lease), the rent payable under the
lease, and whether it‘s a residential or non-residential lease. Whether an SDLT
return needs to be completed will depend on the length of the lease and the
amount of the rent and premium.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Specific tax advice would need to be sought from a suitably qualified ac-
countant in England and Wales although the property is likely to be subject to
capital gains tax. If and when a chargeable asset is sold or gifted and that asset
has increased in value, tax may be charged on the gain (profit). There may be a
relief available against capital gains tax where principal private residence relief
(PPR) is available. This relief would apply on the disposal of an individual’s
only or main residence. The relief may not be relied upon in circumstances
where the principal private residence is sold regularly and where the investor
does not pay capital gains tax on that disposal as it would be deemed to be a
business and liable to tax. Investment properties, however, are taxed and any
income derived from investment property is taxed (subject to certain allowable
deductions).
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8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
In order to change the use of a building from residential use to office use, a
party would need to apply for planning permission. This is because there is a
‘material change of use’ in the premises. In England and Wales, some uses of
land are considered so similar there is no need to apply for planning permis-
sion. There is a class order for a buildings use which outlines that planning
permission is not always needed if the use is being changed from one use into
another but are not moving between classes. The change in use from residential
use to an office space involves moving between different classes, specifically
Class C3 to Class B1, and as a result, an application for planning permission
would need to be made.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
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England and Wales
– estate agent?
– others
– Notarial costs: It is thought that there would not be any English notarial costs
although it is likely that there may be foreign notarial costs relating to the
country of origin of the investor
– Land register: In relation to the purchase of unregistered land, the land regis-
try fee would be around EUR 1,100
– Real estate transfer tax: Stamp duty land tax would amount to around EUR
200,000 (assuming that there are no available exemptions and reliefs)
– Advising lawyer (due diligence): This would depend on the nature of the
proposed transaction and the level of work involved although it is thought that
legal costs would be around EUR 25,000 – 30,000
– Agent: The level of costs would depend on the deal. The agent can charge up
to 2% of the value of the transaction but in some instances, land agents will
charge up to 15% if they had introduced the land to the purchaser.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
There are certain rate relief schemes available from central government; some
are automatically applied whilst others need application for.
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13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
This is a very good time to invest in real estate particularly where the investor
is financially able to do so as property prices have fallen in England and Wales.
There are also some excellent residential property portfolios that are available
as well as some part built schemes. Bank sales are also worth considering in
particular.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
If anybody is buying property in the UK then they would need to comply with
the same procedures as would apply to UK based investors. This may include
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England and Wales
Yes. We are happy to assist foreign investors in all of the above aspects should
they require our assistance.
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Finland
Bulevardi 1 A, 00101
Helsinki
Finland
+358 9 474 21
www.hpplaw.fi
jari.tuomala@hpplaw.fi
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Finland
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Real estate transactions in Finland are governed by the Code of Real Estate
(540/1995). Before a transaction is legally binding and can be registered, a sale
purchase agreement signed by both parties needs to be attested by a notary.
A sale purchase agreement has to at least include information of the purpose
of the transaction, identify the real estate and the parties and describe the pur-
chase price or other form of consideration. In addition, a sale and purchase
agreement usually includes terms for the transfer time of possession and own-
ership, a description of the condition of the land and the buildings, a list of
information provided to the purchaser, payment terms, and details of possible
encumbrances and mortgages.
The ownership of a real estate transfers from a seller to a buyer on the agreed
date, which is often the date when the purchase price has been paid in full.
It is also possible to agree different dates for the transfer of possession and
ownership.
Registration is not a prerequisite for the transfer of ownership, however all
changes in the ownership of a real estate have to be registered with the Land
Register, held by the National Land Survey of Finland.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Finnish law does not allow direct ownership of own units or portions of im-
provements, nor constructions. A real estate, including the fixtures on it, is
in its entirety owned by one or several natural or legal persons (discussed in
detail below). Therefore, the division of the ownership of constructions into
separately and individually owned units or portions is not possible.
A characteristic method of arranging ownership between several owners of
land with buildings on it (e.g. large commercial buildings or apartment houses)
is to do so indirectly by establishment of a real estate company (condominium).
In such a case the real estate company owns the real estate and the sharehold-
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ers are entitled to possess assigned flats or premises based on the shares they
own.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, joint ownership is possible. Both companies and private persons may
jointly own a real estate, i.e. two or more subjects together.
There are no general limitations on private persons, companies and other
commercial or juridical entities for owning real estate or shares in a real estate
company,
Yes, in Finland a real estate is composed of an area of land and of all build-
ings and constructions that are located on the land. Therefore the ownership of
a building is usually implied in the ownership of the particular piece of land
where it is situated.
It is also possible, however, to own a building and to obtain a long-term lease
(usually for 30 to 50 years) over the land from the owner, who usually is the
municipality or the city. Therefore, in case of a land lease, the buildings and
the land are owned by different owners. The land lease agreement must be
registered in the Land Register. This registered land lease right together with
ownership of the building by the lessee is close to the ownership of the real
estate. The land lease right together with the building located on the leased land
is usually transferable and can also be mortgaged.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
After the purchase of a real estate the buyer has to register his title with the
Land Register, which is held by the local office of National Land Survey of
Finland, within six (6) months of the date of purchase. A land lease agreement
has to also be registered with the same authority and within the same time
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Finland
frame. The register includes information of the owner of the real estate or of
the land lease right and the details of the land area. It does not, however, in-
clude information of possible buildings or other constructions located on a real
estate. Therefore there is no official register of buildings in Finland.
A person acting in good faith can rely on register entries, even if the entries
turn out to be erroneous or inaccurate. In such case, the State is liable for finan-
cial loss caused by the erroneous information.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
A buyer of a real estate has the duty to complete the registration of title within
six months from the signing date of the sale purchase agreement as well as to
pay transfer tax within the same time period. The transfer tax for a real estate
is four (4) % of the purchase price.
If a real estate is owned indirectly through the shares of a real estate company,
the buyer of the shares of a real estate company has the duty to pay within two
(2) months from the date of transaction. The transfer tax for the shares of a real
estate company is one point six (1.6) % of the debt free purchase price.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
There are no limits in general on how long one has to have owned the prop-
erty before selling it. The income tax for sales profit is 28 % (year 2010) re-
gardless of the time of possession.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
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9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
The buyer of a real estate or of shares of a real estate company is not allowed
to terminate any lease contracts merely due to change of ownership. The buyer
(new owner) shall be bound by the lease contract in accordance with the lease
contract terms, and thus the rights and obligations of the lease contract transfer
to the buyer.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Changing the use of a building from residential use to office use means that
the purpose of the space is actually changed. This means that an application for
a building licence needs to be made to the local authorities (Rakennusvirasto)
before the start of the construction. When there is a need for a major construc-
tion work, it might be necessary to apply for a deviation permit or even a new
detail plan if the planned use contradicts significantly the existing land use (i.e.
town plan), before commencement of the construction work.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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Finland
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
The annual real estate tax is charged from the owner and the tax per cent
depends on the location of the real estate. Municipalities are allowed to choose
their tax percentage with certain limits. The common tax percentage is usually
between 0.65 to 1.35 % (2010). There are six different categories of real estate
tax that is charged. The final tax amount greatly depends on what kind of build-
ing and especially for what purpose there are on the real estate.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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Finland
When the purpose of buying a real estate or real estate company shares is to
run a business, it is not subject to restrictions, except for some limitations in
forest and agricultural transactions.
Under Finnish law, communes have a pre-emption right to buy the prop-
erty within a three-month-period from the purchase. Areas with significance
to commune development might fall under the pre-emption. Only land areas,
which are larger than 5,000 square meters, (in metropolitan area this is 3,000
square meters), may fall within the pre-emption right. It is our experience that
the communes use their right of pre-emption only very rarely.
Yes, our firm is capable in advising foreign clients in all real estate related
assignments. Please contact Mr. Jari Tuomala (Partner, Real Estate) at:
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Legalink – Investments in Commercial Real Property
France
7 rue de Madrid
75008 Paris
France
124
France
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
The formal real estate transaction procedure requires the following docu-
ments:
– Purchase Offer (“Proposition d’achat”);
– Preliminary Contract (“Promesse de vente” or “Compromis de vente”);
– Sale and Purchase Agreement (“Acte de vente”).
Said procedure lasts between 45 days and 3 months depending on the period
required for obtaining a financing and the collection of all necessary informa-
tion to address the property issues.
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A Compromis de vente irrevocably binds the seller and the purchaser and is
subject only to fulfilment of the conditions precedent. Should any one of the
conditions precedent not be fulfilled, both parties may release the contract.
Nevertheless, unlike a Promesse de vente, once all the conditions precedent are
met, the purchaser may not withdraw from the acquisition merely by forfeiting
his deposit. The seller might enforce the sale by initiating legal proceedings.
Individuals purchasing property benefit from a seven-day withdrawal period
for both forms of preliminary contract.
Should the contract be a private deed (“acte sous seing privé”), the purchaser
shall receive formal notice thereof and may then withdraw from the deal and
have the deposit refunded within a seven-day withdrawal period.
Should the contract be executed before and registered with a notaire (“acte
authentique”), the latter will provide the purchaser with a draft agreement
seven days beforehand, so the withdrawal period will have elapsed when the
parties convene at the notaire’s office to sign the agreement.
When the seller and the purchaser each have their own notaire, the seller’s
notaire is in charge of collecting and forwarding all relevant documents to the
purchaser’s notaire. The notaire should then systematically address the prop-
erty issues involved and eventually call a meeting to sign the final sales deed,
when the purchaser is satisfied with the information provided to him.
Meanwhile, the purchaser liaises with his bank to raise any required financ-
ing. The Preliminary Contract usually states the terms of the loan application
process and sets out a time period for the purchaser to evidence to the seller
that he has applied for a loan (usually within 15 days from signing the Pre-
liminary Contract) and subsequently, that the loan has been obtained (generally
within a maximum period of 45 days).
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France
At the closing, the purchaser gets the keys together with a certificate from the
notaire, declaring that the former is the owner of the property.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. The system of ownership devised for managing flats, offices and retail
properties within one building is called „copropriété”. It is particularly relevant
for apartments within a property and rare for individual houses.
The copropriété enables the purchaser of a property to acquire the full free-
hold ownership of certain parts, hence dividing occupation of the property.
Buildings are divided into private and common parts. The full freehold own-
ership of the private parts is passed to the respective owners whilst the com-
mon parts (e.g. entrance lobby, garden, roof) are collectively owned in copro-
priété in proportion of the size, situation and nature of private part held by each
co-owner.
The definition and management of parts is set out in the rules of co-ownership
(“règlement de copropriété”), which determines the proportionate shares of
each co-owner in the control and service charges of the common parts.
A co-ownership property representative is appointed to take care of the day-
to-day management of the property. Certain co-owners are appointed as mem-
bers of the co-owners association by the annual co-owners meeting.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. French property can be owned in various ways under French Law, which
can be either a classic joint ownership, or a retroactive survivorship right
(„clause de tontine”) or through a French property holding company (“Société
Civile Immobilière”).
Under a classic joint ownership, the purchase is assumed to be made equally
and separately by the purchasers. For example, two owners will purchase 50%
of the property divided between them and can be free to choose how to deal
with the property in their respective wills.
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Article 552 of French Civil Code states that, as a general rule, ownership of
the ground involves ownership of what is above and below it.
According to Article 553 of French Civil Code, all constructions, plantings
and works on or inside a piece of land are deemed to be made by the owner, at
his expenses and belonging to him, unless the contrary is proved.
As a result, where plantings, constructions or works are made by a third party
and with materials belonging to the latter, the owner of the tenement has the
right either to keep the ownership thereof, or to compel the third party to re-
move them.
However, there are exceptions to this principle, which enable the lessee to
have a property right (“droit réel“) on the leased real estate by the owner for a
fixed period of time, such as:
– a long-term lease agreement (between 18 and 99 years) („bail emphythéo-
tique“);
– a building lease agreement („bail à construction“).
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France
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
The cadastral record and the title deed of a land are registered in an official
land register called “registre des publications”, which is kept by the land regis-
try office (“Bureau de la Conservation des Hypothèques”).
The legal effect of the publication of a valid title deed, which is almost the
case especially after checkout of the notaire (the land registry office is not
allowed to check the validity of the title deed he receives) in the official land
register is the opposability of said title deed to third parties. Owners are some-
how protected by the publication of their valid title deed.
However, should the validity of a title deed of a good faith purchaser regis-
tered in the official land register be argued by a person, said good faith pur-
chaser may not use its publication as sufficient evidence of ownership.
Satisfactory evidences of ownership are:
– the adverse possession (“l’usucapion”),
– possession of the land,
– titles of transfer of ownership, and
– judicial presumptions.
Besides, the land registry office may be held liable for any damage caused by
error in the official land register.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
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Article 150 U, I of the French Tax Code states that, as a general rule, capital
gains made by individuals of legal entities resulting from sale of property, built
or not, are taxable.
However, said individuals and legal entities are exempted from paying taxes
on the capital gain resulting from sale of property, where said capital gain
results from:
– the sale of their main residence (Article 150 U, II, 1° of Tax Code);
– the sale of a property held for more than 15 years (Article 150 VC, I of Tax
Code);
– the sale of a property of an amount less or equal to €15,000.00.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes, free movement of capital is the general rule. There are some exceptions
to said rule both within the EU and with third countries, which are primarily
related to taxation, prudential supervision, public policy considerations, money
laundering, and financial sanctions agreed under the common foreign and se-
curity policy.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
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France
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Yes, French case law allows the parties to change the purpose of the leased
real estate from residential use to official space, provided that said change:
– results from a specific agreement between the parties or from a tacit consent
of the lessor,
– does not infringe the declaration of co-ownership,
– does not relate to real estate built for residential purposes, which falls under
the scope of Article L632-1 of the Construction and Dwelling Code and which
requires a specific official approval for any change of purpose.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Holding a property gives rise to local taxes, in particular the property owner-
ship tax („taxe foncière”) and the French residence tax (“taxe d’habitation”),
and to the wealth tax.
Local authorities also charge rates on business premises, called the „contribu-
tion économique territoriale“.
– the property ownership tax
This tax is an annual property ownership tax applicable irrespective of wheth-
er the property is actually occupied or rented out.
The tax is levied on a collective basis by the local, departmental and regional
councils and is used for funding local services.
Broadly speaking, the basis of the assessment is the notional rent that the
property might be expected to achieve in the open market, having regard to the
size, condition and location of the property.
The amount payable each year varies so much between local tax authorities
that it would be meaningless to state an average.
– the French residence tax
The French residence tax is an annual residence tax imposed on the occupier
of a property on January 1st of each year.
If the property is a second home, even though it is not physically occupied,
the tax is still payable, provided that said property is capable of occupation.
Indeed, the main criteria for this rule is the owner’s right of occupation of the
property.
Similarly to the property ownership tax, the French residence tax is based on
the notional rent that the property might be expected to achieve in the open
market, having regard to the condition, size and location of the property.
– the wealth tax
The wealth tax is a specificity of the French tax system. It is a yearly tax ap-
plicable to individuals only, with personal assets reaching at least € 790,000.
Pursuant to article 885 A 2 of the French Tax Code, foreigners are subject to a
particular regime, since they are subject to the wealth tax for their sole assets
located in France (except for their financial investments which are tax-free).
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France
Wealth tax is yearly payable on the basis of a tax scale, that takes into account
the disposable value of the taxable personal assets.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
Even though the 2009 worldwide financial crisis has affected the real estate
market, French market turns out to be profitable for foreign investors. Indeed,
France has benefited from not having an overpriced market and a system that
is more cautious in terms of lending. These days, several measures have been
taken to regain investors’ confidence, such as the „loi Scellier”, which grants
tax exemptions to investors in the new construction market. There are also
more competitive mortgage products offered by French banks to attract foreign
investors. Moreover, the attractiveness of the French market is enforced by the
value of Euro falling down recently.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
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16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Yes, our firm includes lawyers with specialised experience in real estate and
construction law, who may of course assist foreign investors in these matters.
The Rules of Professional Conduct of the Paris Bar, as recently amended, al-
low lawyers to act as real estate agents and foreign investors may call upon our
services considering the following advantages:
– lawyers may be aware of sales which do not appear on the market, such as real
estate related to inheritances, divorces, breach of joint tenancy;
– deposits in connection with real estate transactions are paid on lawyers’ pro-
fessional accounts (also known as “CARPA” account, i.e. the French funding
body for monetary payments of lawyers) which guarantees the representation
of the clients’ funds with greater coverage than usually provided by real estate
agents’ insurance;
– not only our professional code of conduct – which provides for independence,
loyalty, impartiality – but also our professional liability insurance apply to law-
yers handling real estate transactions;
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France
– lawyers are experts in negotiation and drafting of contracts, including real es-
tate related transactions.
In conclusion, the professional ethics rules and expertise of French lawyers
should lead foreign investors to seek their advice and assistance at each and all
stages of their real estate transactions in France.
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Germany
Jakoby Rechtsanwälte
Schlüterstraße 37
10629 Berlin
Germany
136
Germany
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Land register
Land registers are in most areas administrated by the local courts. The land
register contains information regarding all private law aspects of the property,
i.e.
– size of the property,
– if it is open area or landed property,
– where exactly it is located according to special field cards that authorities in
Germany provide for,
– who the owner is and
– what encumbrances are on the property, e.g. rights of way, rights of pipes and
very important land charges as securities for loans.
In order to transfer ownership of a property from the seller to the buyer the
transfer has to be formally entranced into the land register. This entry of trans-
fer of title is constitutive for getting the ownership. Communication with the
land register is held by notaries who in Germany are specialized lawyers in this
field of law. In some areas of Germany they act only as notary, in other areas
like for example in Berlin some lawyers get the privilege to act as lawyer and
as notary. The notaries draft the contracts for property transactions.
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138
Germany
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, the German system knows joint ownership. There can be couples or
friends or almost all kinds of companies holding property alone or jointly by
percentages they can freely choose.
In Germany usually the owner of the land owns all buildings erected on it.
This may differ in cases where the land is for example divided into condomini-
ums or if there is a so called hereditary building right (“Erbbaurecht”). This
can be checked easily by having a look into the land register. The hereditary
building right (“Erbbaurecht”) is the right to have a (whole) building in own-
ership on the land that is in ownership of another natural person or company.
We see this hereditary building right in Germany often in areas where the big
churches, i.e the Roman catholic and the evangelic church, own land. The
churches often do not sell the land to people but give hereditary rights to have
a building on the property for example for 50 or 100 or even more years. The
hereditary building right is entranced formally in the land register and the land
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register opens a further land register for the hereditary building right since this
is handled like a property, which means that it can be used as security for land
charges on this right and so on.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes, as mentioned above almost all (some property in ownership of the state
has not to be registered) properties in Germany are registered in the land reg-
ister and good faith into the correctness of the civil rights entranced in the land
register (not to the size and use of the buildings erected on it) is protected. If
the land register was false and a land charge was deleted by mistake and the
buyer buys it on first sight “free” of charges, he is protected in his good faith
(sec. 892 German Civil Code). The bank in the given example would have a
claim against the Federal Land in Germany where the court of the land register
is located for the damages suffered because of the false land register.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Real property transfer tax has to be paid on real property transactions and in
most areas of Germany the percentage of this tax is 3.5 percent of the purchase
price, in Berlin and some other areas it amounts to 4.5 percent. According to
tax rules in general, when real property transfer tax is applicable no further
turnover tax (19%) is due in parallel. This rule does not apply when both, seller
and buyer, are companies or business persons and the seller waives the right
of buying the property without turnover tax. This waiver can be good for the
seller for example if he had paid pretax for erecting a building on this land in
recent years. Then he can count up the part of the turnover tax against his pre-
tax. The buyer can count up the turnover tax against his pretaxes as well so that
he has often no negative result out of this tax aspect. Though this requests that
the buyer has pretaxes in Germany which foreign investors usually only have
if the building is or will be rented to entities or business persons who have to
pay turnover tax on the rents. These tax aspects need to be checked before the
purchase contract will be notarized.
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Germany
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
In Germany, one normally has to hold the property for 10 years calculated
from the notarial purchase contract to avoid speculation tax that can occur, if
the selling price (incl. costs) of the property is higher then the purchase price
has been. If speculation tax is applicable, the amount depends on the income
tax rate of the seller of the property. Foreign investors should check possible
further tax aspects of their home country in this respect.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
In Germany no problem.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
We have the rule that the purchase of a property does not break the lease
contract (sec 566 German Civil Code), means the purchaser by law enters into
the lease contract and normally the commercial lease contract cannot be termi-
nated prior to the contractual term neither by the new owner nor by the lessee.
For example, if the commercial lease has a term of ten years and the purchase
takes place after one year the purchaser cannot terminate the lease for an ear-
lier date then 10 years after start of the lease term. This is different when you
acquire property in a sale by court order or from the insolvency administrator
in insolvency cases. In these cases the purchaser has a special right to terminate
the lease contract (“Sonderkündigungsrecht”sec. 57a Compulsory Auction of
Immovable Property Act (“Zwangsversteigerungsgesetz”) and sec 111 Insol-
vency Act (“Insolvenzordnung”).
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
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You have to check precisely for every purchase case separately. Two aspects
have to be taken into account:
1. if the building permit allows the intended use of the purchaser and
2. if in the area in question the local authorities have set a development freeze
(“Veränderungsperre”). Local authorities do this sometimes in areas with to
little residential property.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
– Notarial costs: About EUR 25,000 plus 19% turnover tax for German entities,
normally no turnover tax for foreign entities; if financed for example with a
land charge amounting to EUR 4 million further costs of about EUR 6,100 oc-
cur plus tax depending as outlined before
– Land register: About EUR 12,500; if financed for example with a land charge
amounting to EUR 4 million further costs of about EUR 6,100
– Real estate transfer tax: EUR 175,000 (3.5 %) or in some areas EUR 225,000
(4.5%)
– advising lawyer (due diligence): depending on the agreement with the law-
yers; normally they act with international clients on hourly rates, mostly spe-
cialized law firms have ranges of rates between EUR 250 up to EUR 400; legal
assistance from day one of the deal until transfer of title would take about 50
hours plus time of a due diligence, if a due diligence is requested by the cli-
ent.
– estate agent: between 4 and 6 % net of the purchase price depending on the
market situation and the specific plot of land; VAT (19%) for German entities,
normally no turnover tax for foreign entities
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Germany
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
This differs from the property and the number of tenants. In commercial real
estate you can grossly calculate about 2% of the net rent of the object per
month.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
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15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
There are no restrictions in Germany. You can buy property as private or busi-
ness person or as an entity with no seat or branch office in Germany.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
144
Germany
Yes, we would be pleased to assist foreign investors in all these aspects in-
volved. The other German member firms of Legalink would be pleased to as-
sist as well.
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Hong Kong
Charltons
146
Hong Kong
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
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Legalink – Investments in Commercial Real Property
Agreement with detailed terms and conditions reflecting the terms in the Provi-
sional Agreement for the purchaser’s solicitors’ review and comments..
The vendor and the purchaser will usually but not necessarily enter into the
Formal Sale and Purchase Agreement within 14 days after signing of the Pro-
visional Agreement. A further deposit will be paid by the purchaser, making up
a cumulative total of 10% of the purchase price (taking into account the initial
deposit).. In some cases where the parties agree, the vendor’s solicitor may act
as stakeholder whereby he holds the 10% deposit for the vendor until the con-
ditions of the stakeholdings are fulfilled, usually, upon proof that the balance
of the purchase price is sufficient to discharge the mortgage (if any) and/or the
purchaser is satisfied with the title of the property.
In relation to the purchase of a residential property, the purchaser’s solici-
tors will arrange stamping of the Formal Sale and Purchase Agreement with
the Stamping Office at the Inland Revenue Department and registration of the
same with the Land Registry within 30 days after signing for the protection of
the purchaser.
In relation to the purchase of a non-residential property, stamp duty is not
payable on the Formal Sale and Purchase Agreement. However, the purchaser’s
solicitor will arrange registration of the Formal Sale and Purchase Agreement
directly with the Land Registry within 30 days after signing for the protection
of the purchaser.
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Hong Kong
and the purchaser will sign and execute the Assignment to effect the transfer of
title from the vendor to the purchaser.
Within 30 days after signing of the Assignment, the purchaser’s solicitors will
arrange stamping of the Assignment with the Stamping Office at the Inland
Revenue Department and registration of the Assignment with the Land Regis-
try for the protection of the purchaser.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
After the return of the sovereignty on 1 July 1997, all land in Hong Kong is
owned by the Hong Kong Government, which is part of the People’s Republic
of China. All land in Hong Kong is leasehold land other than the land on which
an Anglican church, St. John’s Cathedral is situated.
Land in Hong Kong is designated with lot numbers and the Hong Kong Gov-
ernment previously granted land for private leaseholding by way of a govern-
ment lease. A government lease is a lease from the government that grants the
leasehold land to the purchaser.
Since government leases are no longer issued, land is granted by way of Con-
ditions of sale. A Condition of sale is a contract whereby once the conditions
have been complied with, a government lease is deemed to be issued pursuant
to section 14 of the CPO. (“Government Lease”)
Subject to the terms of the Government Lease (issued by virtue of the opera-
tion of section 14 of the CPO), every leaseholder of land is at liberty to deal
with his or her leasehold interest in the lot granted by the Government, includ-
ing (1) the selling or disposal of his or her interest in the lot, (2) dividing and
sectioning the lot into smaller segments and selling off parts of them or (3)
sub-dividing the lot by constructing and building structures over the lot and
assigning all or part of the sub-divided units or flats (in case of multi-storey
building) to different purchasers. The owner has the exclusive right of occupa-
tion and possession of the erections or structures on the lot.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
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Legalink – Investments in Commercial Real Property
Yes, the legal system in Hong Kong allows co-ownership of real property in
the form of (1) joint tenants or (2) tenants-in-common.
Pursuant to the CPO, where a tenancy in the same estate or interest in land
vests in 2 or more persons under an instrument or a will, it shall be presumed
that (unless the contrary intention is expressed in that instrument or will), the
tenancy vests in those persons as tenants-in-common rather than as joint ten-
ants.
Joint Tenants
Real property may be held in the form of joint tenants whereby each joint
tenant has an identical interest in terms of the extent, nature and duration with
respect to the whole and every part of the real property. There is a right of sur-
vivorship in which the interest of the deceased joint tenant will automatically
pass to and vest in the survivor(s).
Tenants-in-common
Tenants-in-common jointly own the undivided shares of a property as a
whole. However, each the tenants-in-common may own the property in a ratio
determined by them i.e. either in equal shares or of different proportions.
Co-ownership by way of tenants-in-common differ materially from joint ten-
ants because there is no automatic right of survivorship. However, a tenant-in-
common’s interest in the property will be part of his or her estate and can pass
either under a will or upon his or her intestacy.
Given the fact that virtually all land in Hong Kong is leasehold, land is not
owned by the “owners” but leased to the owners only. The ownership of a
building is not implied in the “ownership” of the land. However, the Deed of
Mutual Covenant (a deed between the co-owners of the building governing the
use of the building and land) usually provides that the owner of the undivided
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Hong Kong
share of the land will have the exclusive right to use and occupy the unit relat-
ing to that undivided share. Also, the ownership of a building will not neces-
sarily imply the ownership of the land as it is possible to have different owners
of the land and the building erected on it.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Hong Kong has a voluntary land registration system that is governed by the
Land Registration Ordinance (Cap. 128, referred to as “LRO”). For the purpos-
es of land registration, interests in land may be classified either as registrable
(i.e. capable of being reduced into writing) or unregistrable (i.e. incapable of
being reduced into writing).
Registrable interests such as deeds, conveyances, instruments in writing and
judgments affecting real property in Hong Kong may be registered with the
Land Registry and such registration (1) renders any registrable but unregis-
tered interest unenforceable against any subsequent bona fide purchasers or
mortgagees for valuable consideration and (2) precludes a registering party
from being affected by any actual or constructive notice of a prior registrable
but unregistered interest. The land registration system in Hong Kong therefore
functions to (1) protect the priority of registrable and registered interest, (2)
facilitate title tracing and checking and (3) giving notice of the registrable and
registered interest to subsequent purchasers and mortgagees.
In relation to unregistrable interests in land, such as any unwritten equities
creating interests in land arising out of constructive trust (e.g. interest of a wife
in the real property arising out of promise or the husband and wife relationship)
or resulting trust (e.g. interest of Party X in the real property arising out of con-
tributions of purchase money or mortgage repayment by Party X in relation to
the real property purchased by Party Y), both the CPO (in respect of the writing
requirement) and the LRO (in respect of the registration requirement) have no
application. The position regarding the priority of these unregistrable interest
will revert back to the Common Law doctrine of notice in which case, priority
may be given to those unwritten equity interests over a subsequent registered
interest if the subsequent purchasers or mortgagees take notice of such equity
interest when they acquire the interest in land.
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Legalink – Investments in Commercial Real Property
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Real property transactions in Hong Kong are subject to stamp duty pursuant
to the Stamp Duty Ordinance (Cap. 117). Stamp duty will be imposed on both
the agreement and assignment of real property (for non-residential properties,
stamp duty is chargeable only on the assignment for the transfer).
For properties not exceeding HK$2,000,000, the stamp duty payable is only
HK$100; for property consideration exceeding HK$2,000,000, the stamp duty
payable is on a sliding scale as follows:-
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Hong Kong
(e) where the amount or value of the (e) 2.25% of the amount or value of
consideration exceeds $3,290,320 but the consideration
does not exceed $4,000,000
(f) where the amount or value of the (f) $90,000 plus 10% of the amount
consideration exceeds $4,000,000 but by which the amount or value of the
does not exceed $4,428,570 and the consideration exceeds $4,000,000
instrument is certified in accordance
with section 29 at $4428570
(g) where the amount or value of the (g) 3% of the amount or value of the
consideration exceeds $4,428,570 but consideration
does not exceed $6,000,000
(h) where the amount or value of the (h) $180,000 plus 10% of the
consideration exceeds $6,000,000 but amount by which the amount or
does not exceed $6,720,000 value of the consideration exceeds
$6,000,000
(i) where the amount or value of the (i) 3.75% of the amount or value of
consideration exceeds $6,720,000 but the consideration
does not exceed $20,000,000
(j) where the amount or value of the (j) $750,000 plus 10% of the amount
consideration exceeds $20,000,000 by which the amount or value of the
but does not exceed $21,739,120 consideration exceeds $20,000,000
(k) in any other case (k) 4.25% of the amount or value of
the consideration
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
The Inland Revenue Department will charge profits tax on any persons, in-
cluding corporations, partnerships and bodies of persons who derive profits
through carrying trade, profession or business in Hong Kong. It is a question
of fact as to whether a business is being carried on as a result of any sale and
purchase of real property in Hong Kong, in which case some of the relevant
factors that will be taken into account are as follows:
(a) the time or length of ownership of the property;
(b) the use of the property;
(c) the financial situation of the purchaser when the property was purchased;
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Legalink – Investments in Commercial Real Property
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
A lease creates an interest in land and in the event that there is an existing ten-
ancy in respect of the real property, a purchaser will have to purchase the real
property subject to the lease interest. It is advisable for a purchaser to ascertain
if the vendor is able to deliver the subject property with vacant possession free
from any lease and tenancy.
To terminate the existing tenancy, the purchaser will have to seek recourse to
the termination provisions of the lease (such as early termination) and subject
to the terms of the lease, the purchaser may be able to effect early termination
of the tenancy.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
In Hong Kong, the nature and use of a building is closely related to the type
of land granted by the Government. The conditions of sale, grant or exchange
in relation to a plot of land usually contains restrictive covenants governing
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Hong Kong
the usage of the land such as residential, commercial, industrial or hotel use.
Variations or modifications of the Conditions of sale, grant or exchange will be
subject to the approval of the Lands Department and payment of a substantial
premium.
In relation to individual flats or units in a multi-storey building, such usage
is governed by the “Deed of Mutual Covenant” and shall be the same as that
stipulated in the Conditions of sale, grant or exchange. Any changes to the
Deed of Mutual Covenant are subject to the approval of all the owners of a
particular building.
Given the fact that any variations or modifications in the usage shall be (a) ap-
proved by the Lands Department, (b) subject to the payment of land premium
and (c) approved by all owners of the building, a change of usage of a building
in Hong Kong is really difficult if not impossible.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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Legalink – Investments in Commercial Real Property
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Government rent and rates are chargeable on real estate property at an amount
of 3% and 5% respectively, based on the rateable value which is the estimated
annual rental value of the subject property at a designated valuation reference
date, assuming that the property was then vacant and for lease.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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Hong Kong
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
Hong Kong is one of the most expensive real estate markets by world stan-
dards, which can be a result of the scarcity of land, the housing shortage and
having a population of 7 million.
However, it is useful to note that Hong Kong has been ranked as the world’s
freest economy for the 16th consecutive year according to the 2010 Index of
Economic Freedom, jointly published by The Heritage Foundation and The
Wall Street Journal. The Index covers over 180 countries across 10 specific
freedoms including trade freedom, business freedom, investment freedom and
property rights. Hong Kong scored a total of 89.7 out of a possible 100 points
putting the city in first place.
Investing in real estate in Hong Kong is purely a commercial decision that re-
quires taking into account a number of factors and considerations such as how
familiar the foreign investor is to (a) the real estate market in Hong Kong and
(b) the fluctuations and risks in interest rates and foreign exchange rates.
Interest rates are relatively low at the moment, which has attracted more buy-
ers into the real estate market. In respect of foreign exchange rates, the Hong
Kong dollar maintains a fixed exchange rate with the U.S. dollar in which
interest rates and currency fluctuation follows the trend in the United States,
creating a relatively stable currency platform.
It may be an opportune time for foreign investors to invest directly in real
estate in Hong Kong due to the current low interest rates, which make it rela-
tively affordable to finance a mortgage.
In addition, the Hong Kong Government currently operates a capital invest-
ment entry scheme whereby foreigners who make a capital investment of
HK$6.5 million may gain residency in Hong Kong. As there are numerous
people in mainland China who would like to gain residency in Hong Kong,
this scheme has led to many mainland Chinese investing in the Hong Kong
property market and in effect, causing the price of property to rise.
Other clear and secure financial products include investing in stocks of
various property developers. The stock prices of property developers depend
largely on the price at which the land was auctioned, whether the land was suc-
cessfully auctioned and whether purchasers are willing to buy the constructed
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Legalink – Investments in Commercial Real Property
property (which in turn depends on interest rates and the economy in general).
As mentioned above, the interest rate is low and property developers in general
have been turning in good profits. Investing in stocks of listed property devel-
opers is another avenue of investing in the property market in Hong Kong.
In respect of real property funds, foreign investors may wish to explore the
option of investing in real estate investment trusts (REITs), which are listed
trusts.
Link REIT was the first REIT listed on the Hong Kong Stock Exchange with
assets of around US $3.3 billion. Link REIT includes 180 properties, consisting
of mainly shopping malls and car park facilities.
REITs work by investing in income-producing real estate assets and using the
income derived to provide a return to its unit holders. By purchasing a unit in a
REIT, it allows investors to share in the risks as well as the benefits of owning
the real estate assets held by the REIT.
Investing in REITs is relatively secure as they have a stable income and tend
to give generous dividends, which makes them a very attractive investment
alternative.
Although there was a global economic slowdown during 2008, Hong Kong
has upheld its status as Asia’s second largest destination for foreign direct in-
vestment after mainland China, attracting over US$60 billion in 2008 accord-
ing to the World Investment Report 2010. This in itself can provide foreign
investors with the added confidence when investing in Hong Kong reflecting
the fact that it is a popular hub for investment amongst foreign investors.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
There are no such restrictions and any individual person, corporation or for-
eign entity that has a recognized legal status and capacity may purchase prop-
erty in Hong Kong.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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Hong Kong
Government Leases usually contain restrictions as to the use that the land
may be put. In the event that a leaseholder wishes to use the land for a specific
purpose that does not comply with the lease conditions, an application for a
lease modification should be made to the Lands Department in order to vary
the conditions under the Government Lease. A lease modification is a variation
of the conditions of the Government Lease in respect of the property, including
the permitting of a change of use.
The Lands Department may also refer the application to other relevant depart-
ments for approval, including the Planning Department, Building Department
and Fire Services Department. Each application will be considered on a case-
by-case basis together with the relevant circumstances.
If the Lands Department approves of the application for the lease modifica-
tion, then the modification will be reflected by way of a Deed of Variation or
letter of modification.
In addition, the leaseholder will be required to pay a premium reflecting the
enhanced value of the property. It may also be the case that additional condi-
tions relating to the new use of the property are imposed.
The application for a lease modification normally takes at least 6 months to
obtain approval.
In the event that the purchaser intends to build a building on the land, he will
have to engage surveyors and architects to draw a building plan. That building
plan must comply with the plot to volume ratio specified in the Government
Lease. The plot to volume ratio specifies the floor area that can be built upon a
specified piece of land. This ratio is a method used by the Hong Kong govern-
ment to regulate the height of the buildings and the usable space of the build-
ings. As land becomes more scarce in Hong Kong, developers are more in-
clined to maximize the usable space by maximizing the use of the plot of land.
Therefore, apart from complying with the plot to volume ratio of the land. The
Planning Department must also approve the building plan. This is to ensure the
building is suitable from a city planning perspective. The building plan must
also be approved by the Lands Department, the Building Department and the
Fire Services Department. The Fire Services Department will ensure that the
fire escape paths in the building plan is useable, safe and effective.
Upon approval of the building plan, a certificate of approval will be issued.
If the building is for residential use, the whole building will be notionally
divided into a number of undivided shares representing the units intending to
be created from the block of flats. This is usually done by the purchaser’s so-
licitors by creating a Deed of Mutual Covenant, which specifies the number of
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Legalink – Investments in Commercial Real Property
shares allocated to various units or areas of the building. This Deed of Mutual
Covenant must be submitted to the Lands Department and Planning Depart-
ment for approval. After approval, an occupation permit will be issued.
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Hong Kong
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Hungary
H-1055 Budapest
Kossuth tér 16-17
Hungary
162
Hungary
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
After signing of the purchase agreement, the agreement is filed with the land
registry immediately and it is also automatically forwarded to the tax authority.
Filing with the land registry has the effect that any later requests for registra-
tion of rights or facts on the same property will be ranked behind the purchase
agreement, thus the purchaser who filed first is protected. At the signing of
the purchase agreement, up to the parties’ decision, a collateral is usually also
provided, most often a 10 - 15% earnest [foglaló] by the purchaser. If the pur-
chaser breaches the agreement, it loses the earnest. If the breach is committed
by the seller, it shall repay twice the sum of the earnest. After the signing, the
parties have time to prepare the transfer of title, thus to vacate the property,
free it from encumbrances (e.g. mortgage) and to collect the remaining install-
ments of the purchase price. The transfer of the (last installment of the) pur-
chase price, transfer of possession of the property and transfer of the seller’s
declaration of consent for the registration of the purchaser’s ownership title
takes place generally simultaneously. Finally, the purchaser files the seller’s
declaration of consent with the land registry, and once the land registry issues
its registering decision, the purchaser will be registered as owner of the real
property as of the date of filing the declaration of consent, along with the ap-
plication form for the registration of the new owner’s title.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
The Hungarian legal system permits joint ownership of real estates, therefore
multiple entities can be owners of the same real property to different propor-
tions.
Besides this, it is possible that land and the building erected on that are owned
by different owners. In that latter case, the building forms a separate real estate,
the owner of the building may use the land to the extent necessary and has a
pre-emption right over the land, while the owner of the land has a pre-emption
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right over the building. These rights are attached to the ownership of the land /
building, and not the person of the owner.
In Hungary, condominiums may also be founded in buildings where at least
two, independent units for residential or non-residential purposes exist, or are
technically eligible to be divided. In this case, technically separated parts pass
into the private and separated ownership of the condominium owners, while
land, structural parts and equipments of the building form joint property of the
owners.
Although less popular, there also exist so-called “residential cooperative soci-
eties” [lakásszövetkezet], where the structural parts, equipments are not in joint
ownership, but owned by the cooperative society (a legal person), in which all
or some of the flat owners are members.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Two or more persons may be owners of the same real property by specific
shares. Joint ownership of real property does not mean that the real property
is either physically or legally divided, although, the joint owners may agree
on the division of the use of the property. Each of the joint owners is entitled
to use the property and to alienate or encumber its share, but the other owners
have a pre-emption right (with identical terms) if one of them wishes to sell its
share to a third party. If one of the joint owners deceases (dissolves), its share
is inherited by its heirs (acquired by its successor) and the shares of the other
joint owners remains unchanged.
Generally, all entities that are subjects of the law (natural persons, legal per-
sons, and the two kinds of business associations without legal personality) can
be owner of a real property.
Nevertheless, there are certain limitations on the acquisition of real property,
in case the real property is qualified as agricultural land or if the purchaser is
a foreign entity.
Acquisition of agricultural land:
– Domestic citizens may not acquire more than 3 sq kms of agricultural land.
– Domestic legal persons may not acquire any agricultural land in Hungary. The
State and local governments are fully exempt from this limitation and churches
and mortgage banks enjoy a specific partial exemption.
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Hungary
– Foreign citizens and foreign legal persons may not acquire any agricultural
land in Hungary. Citizens of EU Member States, EEA Member States, and
citizens of other states who enjoy the same rights as EU citizens as a result
of an international treaty enjoy an exemption if they meet certain conditions.
(Mainly that they have lived and pursued agricultural activity in Hungary for
minimum three years before the acquisition.)
Acquisition of non-agricultural real properties by foreign entities:
– If the foreign entity is a citizen / legal person from a state that is not a Mem-
ber of the EU, a Member of the EEA or a state whose citizens/entities receive
the same treatment as EU citizens, the acquisition shall be authorized by the
competent administrative office. The authority decides on the basis whether
the acquisition would violate public interest or a local government’s interest.
This does not apply to foreign individual entrepreneurs, if the real property is
necessary for their business activity.
– Citizens of EU Member States and legal persons registered in such states may
acquire ownership of a non-agricultural real property under the same rules as
domestic citizens, i.e. without any authorization.
The above limitations do not only apply to purchase, but to gift and swap
transactions as well. Notwithstanding the above, it is not prohibited to own a
real property, the ownership of which is against the above restrictions, in case
the ownership title was lawfully acquired, prior to the effective date of the
above prohibitions.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
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In Hungary, a national land registry contains all real properties, including the
condominium apartments and buildings detached from land. The land registry
contains features of the real properties (e.g. location, topographical lot no., ad-
dress, size, agricultural/zoning classification), and rights and facts established
on the property (e.g. ownership, usufruct, mortgages, encumbrances, pipeline
rights, pre-emption and option rights). Registration requests filed with the land
registry office are also indicated, in the form of ‘marginal notes’. The land reg-
istry is authentic towards all acquirers in good-faith in respect of the rights and
facts registered (but not the features of the property or the personal data of the
persons registered). If someone has acquired a right on a real property in good
faith based on the land registry, it is protected against claims based on the inva-
lidity of the previous registry entry. Nevertheless, a lawsuit for the deletion of
the newly acquired and registered right may be initiated if a previous registry
entry was invalid. If the deletion claim is filed against the person who acquired
the right directly by an invalid transaction, the deadline for filing the claim is
the deadline for filing a claim for declaration of invalidity of the transaction. If
the deletion claim is filed against someone who acquired in good faith based
on the invalid registry entry, it shall be filed within three years from the invalid
registration. Only those persons are entitled to file this claim whose registered
right is violated by the contested registration entry (e.g. the previous owner).
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
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Hungary
– it is 2% after the part of the real property’s full value that does not exceed
HUF 4 million (approx. EUR 14,300),
– it is 4% after the part of the value that exceeds HUF 4 million.
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7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
In case of natural person sellers paying personal income tax, tax is payable
if there is a positive difference between the sale price of the real property and
the cost of its acquisition (including investments). In both cases, the longer the
period is between the purchase and the sale is, the smaller the tax rate is. The
tax rate reaches 0% in the 15th year, but in case of housing properties, in the
5th year.
No such tax rules exist for companies.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
If the lease is for an undetermined period, the purchaser may terminate the
lease, and also require the seller to terminate the lease contract and have the
lessee move out. Based on the law, the deadline for leaving the property is 15
days, unless otherwise provided by the lease agreement. In case of flat rent, the
deadline shall be the end of the month, but cannot be less than 15 days.
In case of a lease for a fixed period, the purchaser is not entitled to terminate
the lease, unless the purchaser was misled by the lessee in respect of the exis-
tence or significant terms of the lease agreement.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Yes, it is possible to change the use of a building or a part of it. If the change
of use does not affect the structure or the face of the building, no approval is
necessary, the applicant shall only notify the construction division of the local
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Hungary
municipality. If the structure or the face is affected (thus the change also neces-
sitates construction works) a request for construction permit shall be filed with
the same authority.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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– advising lawyer (due diligence): The legal fee of a simple real property trans-
action with a few parties and a few real properties (without due diligence and
without additional and more complex legal consultancy) may vary in the range
between 1-3% of the value of the transaction. If the transaction is more com-
plicated (e.g. there are different encumbrances on the property, the sale is part
of a more complex asset deal, corporate changes or public administrative pro-
cedures must be conducted, etc.) the costs may rise.
– estate agent: Estate agent costs are generally between 2-5% of the real prop-
erty, plus 25% VAT.
– others: No other costs have to be incurred by the parties in a simple case.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
The person which is the owner of the real property as at 1st January of the
year in question, shall pay a yearly building tax or a yearly land tax. The tax is
payable to the local municipality and its rate is also determined by each local
municipality on its own. The law only determines the highest rate of the tax,
but the local municipalities are likely to apply the highest rate.
In case of buildings, the maximum rate of the building tax is HUF 900/sqm
(approx. EUR 3.2/sqm) or 1.5% of the fair market value of the property. The
local municipality is entitled to decide which calculation method shall be ap-
plicable.
In case of real properties within the city border of a local municipality (i.e.
close to the inhabited area), land tax is payable if construction is possible on
the property. Similarly to the building tax rate, two calculation methods exist:
HUF 200/sqm (EUR 0.72/sqm) or 1.5% of the fair market value. Again, the
local municipality is entitled to choose the method.
Local municipalities decide on the tax rate and the calculation methods in
their local municipality decrees.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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Hungary
These costs largely depend on the type of the property (e.g. residential, office,
industrial, etc.) and the services required. Professional caretakers offer a wide
variety of services in Hungary.
According to the general practice of a significant market participant, costs
of employing the personnel has to be paid, and besides this, they apply a so-
called “open-book” invoicing structure, where the invoices received from the
service providers (repairmen) are forwarded to the owner of the property with
an additional 8-10% handling fee. Typically, property owners need for their
office building 1-2 persons who check the maintenance status and tasks of the
building 2 or 3 times a week.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Please see the answer to the third question of Section I above. Of course,
where purchase by domestic legal persons is not restricted (non-agricultural
property) it is possible to create a Hungarian company for the purchase of the
real estate.
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16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
The kinds and time frames of official approvals vary greatly and depend on
the intended business activity. It is also an important question whether the
foreign investor is registered (and if necessary, licensed) in an EU Member
State.
If the foreign investor is not registered in an EU Member State, it may pursue
business activities in Hungary in the following forms:
– by way of a branch office or a representative office;
– by way of a Hungarian company of which it is an owner/shareholder;
– provision cross-border services, if permitted by a Hungarian law or an inter-
national treaty.
A representative office does not possess legal personality. Foundation of a
branch office or of a company generally takes a month, but a simple limited li-
ability company can be registered within 3-4 business days, if “default” clauses
are acceptable for the investor.
Investors registered in EU Member States may provide cross-border services
as prescribed by Directive 2006/123/EC on services on the internal market.
Otherwise, the investor needs to acquire the same permits as domestic entities
have to.
The general deadline for the issuance of a building permit is 45 working days.
Architectural and technical planning documentation must be attached, in ac-
cordance with the detailed statutory regulation. If an environmental permit is
required, that shall also be attached.
If the investor wishes to pursue industrial activity on the plot, it shall be
examined whether the activity requires a permit or a notification in respect of
the plot. The relevant industrial activities (which may be harmful for health,
cause fire danger, extreme noise or smoke, etc.) are listed in a Government
Decree. Certain activities only have to be notified to the local municipality,
others require a permit from the same. The permit is attached to the plot, not
the owner. The deadline for the proceeding is at least 45 days, but it may be
extended by 30 days.
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Hungary
Our law-firm has a wide and long-standing practice in advising foreign in-
vestors on matters related to commercial real estate. Our practice embraces
sale and purchase of real estate, collateral agreements, zoning agreements with
local municipalities, administrative procedures related to plot formation and
zoning requirements, all kinds of construction permits, matters related to ar-
chaeological excavations on real properties, expropriation for investment pur-
poses and obtaining all kinds of permits and approvals for construction, use,
re-classification or the operation of a business in the energy sectors, project
finances, M&A transactions and many other fields of business. For this reason,
we would be pleased to assist foreign investors in all these aspects involved.
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Indonesia
cteolaw@cteolaw.com
www.cteolaw.com
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Indonesia
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Under the Indonesian law, the State controls all lands. The management of
land affairs, such as land tenures and titles, is administered by the State through
the National Land Agency (Badan Pertanahan Nasional or “BPN”). Mean-
while, land/real property sale and purchase transactions can only be registered
with BPN after it has been recorded in a deed drawn up by an authorized Land
Conveyancing Officer (Pejabat Pembuat Akta Tanah or “PPAT“). Under the
Indonesian law, PPAT is the only official authorised to prepare and draw the
authentic deed for the land/property transaction. In most cases, only a notary
public is eligible to become a PPAT but in some regions where there is no prac-
ticing notary available, a PPAT office could be held by the Head of Municipal-
ity (“Camat”) and/or a qualified retired (non-active) BPN official.
1. The procedure of real estate transaction in Indonesia is as follows:
2. The parties shall firstly deliver all of the documents required for the transac-
tion (e.g., the original land certificate, the indentity documents of the parties)
to the PPAT.
3. The PPAT will then verify the status of land/property with BPN. Please note
that PPAT shall bear the responsibility to examine the completeness of require-
ments for the validity of the sale and purchase transaction. Therefore, PPAT
needs to ensure that no other party holds the title of the land/property other
than the seller.
4. For a property that is still under development, the parties usually execute a Sale
and Purchase Binding Agreement (Perjanjian Pengikatan Jual Beli or “PPJB”)
to record the intention of the parties to sell and purchase the property (whether
in the form of a private drawn deed or notarial deed) before entering into a
PPAT’s Sale and Purchase of Land Deed (Akta Jual Beli Tanah or “AJB”).
5. Before the execution of AJB, the buyer must paid in full the land and buildings
acquisition tax (Bea Perolehan Hak atas Tanah dan Bangunan or “BPHTB“)
and the seller must paid in full the income tax gained from the sale proceeds.
6. The execution of AJB by the parties before the PPAT must be witnessed by at
least 2 witnesses. By no later than 7 business days since the execution date,
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PPAT is obliged to submit his/her deed to BPN for the registration purposes
and notify in writing of the said submission to the parties.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
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Indonesia
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Legalink – Investments in Commercial Real Property
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes, the land registration by BPN is carried out in order to give a legal cer-
tainty of the land status (including ownership) and protection to the holder of
the right of the land. In the case of building, as mentioned above there is no
established building registration yet.
It has always been a recognized principle under Indonesian law that a party
entering into a transaction with a good faith must be protected and it applies to
a land transaction and registration as well.
Further, the law specifically provides a protection for a good faith purchaser
who has legally acquired and occupied the property by setting a five years’
statute of limitation (starting from the date of issuance of certificate of title) for
a third party to file a claim over the property.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
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Indonesia
a. if the seller is an individual, any gain resulting from the sale of real proper-
ty is subject to 5% income tax, which calculation is based on the purchase
price.
b. if the seller is a company, 5% income tax shall be applicable if the pur-
chase price and the size of the building exceeds the limit determined by the
Minister of Finance.
2. Real Property Registration Duty: The rate of real property registration duty is
5% of the purchase price. The buyer must settle the payment of registration
duty at the same time of the signing of the sale and purchase agreement before
the PPAT.
In the event the purchase price as stated in the sale and purchase agreement
is less than the purchase price of the property based on the latest tax valuation
thereof (as indicated in the land and building invoice issued by the Land Of-
fice), the latter shall apply in calculating the applicable Income Tax and Real
Property Transfer Tax.
3. Value Added Tax (“VAT”): In case the seller of a property is a taxable entrepre-
neur under the prevailing tax regulation and/or in real estate business, the VAT
at the rate of 10% of the purchase price shall apply.
4. VAT on Luxurious Goods: In case the seller of a property is a taxable entrepre-
neur under the prevailing tax regulation and the size of the property exceeds
the limit determined by the Minister of Finance, the VAT on Luxurious Goods
at the rate of 20% of the purchase price shall apply.
5. Please note that this type of tax shall only applicable one time. Therefore, a
buyer should carefully check the history of the relevant property to confirm
whether the VAT on Luxurious Goods has been paid.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
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8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
The Indonesian Civil Code stipulates that the sale of the property does not
terminate the lease.
This means, if the property owner (or the lessor) sells the rental property, the
lease does not end or terminate, but rather, the buyer of the property becomes
the new property owner or the new landlord. In this respect, the buyer should
honor the existing lease agreement.
An exception, however, applies when the lessee and lessor has expressly
agreed, in the initial lease agreement, that any sale or transfer of the property
shall terminate the lease.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Every region in Indonesia has its own zoning area pursuant to the spatial
layout applicable to that particular area. In general, the spatial layout divides
the area into several zones designated for a specific purpose, e.g., residential
purpose, tourism purpose, commercial purpose, combination of the foregoing,
etc.
If a property owner intends to change the use of a residential building into an
office space, the owner is required to amend the building permit, provided that
the amendment is in line with the then-current zoning rules.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
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Indonesia
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
1. Notarial Cost: Subject to the location of the property, the Notary would nor-
mally charge 1% of the purchase price.
2. Land Register: The cost shall be calculated based on the following formula:
(1‰ x Value of Land) + IDR50,000
The notarial cost above shall include the cost for registering the land with the
Land Registry Office.
3. Real Property Registration Duty: The rate of real property registration duty
is 5% of the result price of the purchase price minus reduction factors. These
reduction factors vary depending on the region in Indonesia.
The Notary will require the buyer to provide the evidence of payment of the
real property transfer tax before the Notary proceeds with the registration of
the land title/certificate.
4. Advising Lawyer (Due Dilligence): In general, a law firm specializes in
commercial property will charge a legal fees of approximately US$8,000 to
US$10,000 for this type of transaction, plus hours spent to conduct legal due
dilligence (as requested). For a land due diligence, the legal fees vary from
USD8,000 to USD15,000. Please note that the fees may change or vary ac-
cording to the complexity of the transaction, the location of the property and
the parties involved.
5. Estate Agent: Subject to the location of the property and the proposed pur-
chase price of the property, the rate for an estate agent varies from 2% to 3%
of the purchase price.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
In Indonesia, there are several tax charges for maintaining the ownership of
the land/property:
1. Land and Building Tax (Pajak Bumi dan Bangunan or “PBB”):
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13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
We would usually suggest for foreign investor who wishes to invest in prop-
erty by way of a property management structure.
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Indonesia
The above option is, by far, the most suitable investment option for foreign
investor because, under the current regulations, a foreigner investor (whether
individual or legal entity) is still prohibited to have a direct ownership over a
land, while a foreign investment company (i.e., a company with foreign par-
ticipation and established under the framework of Indonesian Investment Law)
is also prohibited, from a conservative approach, to engage in lease/leasing/
rental activities.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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Yes, our Firm is in the position to assist foreign investors in every aspect as
mentioned above.
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Indonesia
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Italy
Tel. + 39 06 807 20 34
Fax +39 06 808 87 65
pierre.fortin@bdl-lex.com
giorgio.lener@bdl-lex.com
www.bdl-lex.com
186
Italy
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
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Legalink – Investments in Commercial Real Property
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
On condition that the object of the transaction can be clearly identified in the
Land Registry, a purchase and sale of the property is possible. Depending on
the regulations in force, it may be possible to divide a plot of land into vari-
ous parcels or group together smaller parcels into a larger one. The same is
applicable it residential units. These procedures, which should be carried-out
preliminary to any formal undertaking of the parties (although their accom-
plishment may be a condition precedent contained in a PPSA) require formal
permits from the local authorities which usually require time and expense.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, property can be owned jointly by two or more parties. Any individual
with legal capacity or entity with legal personality (e.g., corporations, certain
associations, etc.) can be the title owner of real estate.
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Italy
is the case. It is, however, fully possible for the ownership of the land and of
the building to be split.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Gains are taxed only in some cases, expressly settled by law. In particular, the
gains realised on the sale of buildings or agricultural lands, are taxed only in
exceptional cases; whereas the gains realised on the sale of building lands, are
always taxed, without exceptions.
Usually, gains are taxed if the property has been purchased or has been built
for less than five years, because the resale within short term is considered spec-
ulative. In this case, the gains must be inserted in the individual income tax
return of the Seller, and it is taxed in virtue of the progressive rate applicable to
his total income. In Italy, for an individual, the minimum rate is 23%, therefore
it is always convenient to ask to the notary that stipulates the deed of sale, for
the application of substitutive tax, which is 20%.
The same is applied to the sale of agricultural lands; whereas the sale of
building lands, if realises gains, is always taxed.
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8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Provided all taxes (which does not include income or capital gains taxes) and
costs related to the transaction have been paid and provided the Seller is a bona
fide foreign resident, the sales proceeds can be freely transferred out of Italy.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
Purchase of leased property does not give the new owner the right to termi-
nate the lease contracts in existence. The terms and costs of any such early
termination must be negotiated separately between the parties to the transac-
tion and the lessee.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Any modification is land or building use requires official approval which will
in turn depend on the zoning regulations in force.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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Italy
These costs may vary depending on the complexity of the matter, etc.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
It depends on the type of property and on the type of work that the profes-
sional caretaker has to do; for example, if the property is rented, the fee for the
caretaker is usually calculated on 5% of every monthly rental.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
A foreign investor today can invest in Italian real estate through any vehicle
which best meets the investor’s financial or operational needs.
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15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
If the land being purchased is already zoned for the type of business in which
the investor intends to engage, no particular official approvals are required. If
this is not the case, the investor will need to request a land-use change which,
depending on the situation, can take from six to twelve months or even lon-
ger.
192
Italy
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Korea
Barun Law
D&M Building
1003 Daechi-dong, Gangnam-gu
Seoul 135-851
Korea
Tel: 82-2-3479-7517
Fax: 82-2-3478-6222
www.barunlaw.com
194
Korea
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
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chaser make the full payment for the purchase price prior to the transfer of the
property.
3. Transfer of Title
Together with the necessary documents to affect the transfer of title of the
property, a seller is obligated to deliver and transfer the property as agreed
under a real estate sale and purchase agreement. As mentioned above, such
delivery obligation is to be performed simultaneously with the purchaser’s ob-
ligation to make the full payment of the purchase price.
In order to transfer the title of real estate, a registration for the ownership
transfer must be made. Unless such registration is made, the ownership transfer
is not completed except for some cases provided under law. In registering the
ownership transfer, in principle, a purchaser and a seller must apply for regis-
tration of such transfer at the registrar. However, in practice, a seller delivers
the necessary documents for the registration of the ownership transfer to a
purchaser with a power of attorney authorizing the purchaser to make the reg-
istration on the seller’s behalf and the purchaser makes the application for the
registration to the registrar. Once the application for the registration of owner-
ship transfer is made, the transfer becomes effective on the date of the filing of
the application. In the event the seller fails to perform its obligation to transfer
the title (deliver the necessary documents to affect the transfer), a purchaser
may bring a court action and the wining judgment therefrom may be used to
show the seller’s intention to apply for the registration of ownership transfer.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. As further explained below, rights over land and building are separate
from each other in principle. Accordingly, owners of land and buildings may
be different parties except where there is strata ownership in one building pur-
suant to the Act on the Ownership and Management of Aggregate Buildings.
For a land on which a building with strata ownership stands, use right over the
proportional area of the land for a portion of the building owned under strata
ownership is combined together with the respective portin of the building for
conveyance.
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Korea
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
There may be two different owners of the land and the building erected on
it in Korea as ownership over the building and the land are separate. In case
the land and the building erected on it have two different owners, surface right
in-law, which is right granted to the building owners regardless of the inten-
tion of the land owner, over the land may be granted to the building owner, if
certain conditions are satisfied. However, if such conditions are not satisfied
and surface right in-law cannot be granted, the building owner must acquire
the use right over the land from the land owner. If the building owner fails to
acquire such use right, the land owner may claim for removal of the building
against the building owner.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
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6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Taxes that are imposed in connection with a purchase of real property include
registration tax, educational tax, acquisition tax and special tax for rural de-
velopment. The registration tax and education tax are imposed in connection
with registration of the transfer. Different rates are applied for residential and
commercial buildings and land as follows, which may also differ depending on
a case by case basis. In case a company acquires land for non-business use, for
extravagant (vacation home and luxurious entertainment purposes) use and/or
that is located within the Seoul Metropolitan areas, the registration tax and the
acquisition tax may be increased up to three to five times the general rate.
1. Residential Building
Registration tax 1% of purchase price
Educational tax 20% of the registration tax
Acquisition tax 1% of the purchase price
Tax in total: 2.2% of the purchase price (for an area exceeding 85 m², ad-
ditional 0.4% applies)
2. Commercial Building
Registration tax 2% of purchase price
Educational tax 20% of the registration tax
Acquisition tax 1% of the purchase price
Special tax for rural 10% of the acquisition tax
development
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Korea
3. Land
Registration tax 2% of purchase price (in case of a purchase by a com-
pany incorporated within five years, three times this
rate applies)
Educational tax 20% of the registration tax
Acquisition tax 1% of the purchase price
Special tax for 10% of the acquisition tax
rural development
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Higher capital gains tax rate applies to sales of real estate with short holding
periods. For a holding period not exceeding one year, 50% capital gains tax
applies and 40% capital gains tax applies for a holding period exceeding one
year and not exceeding two years to the difference in the purchase price and
the sale price. In this regard, for ownership of one residence per family unit for
three or more years (holding period of three or more years and residing period
of two or more years for Seoul Metropolitan areas), there is no capital gains
tax imposed.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes. When a foreigner remits funds into Korea, a report must be filed with a
foreign exchanges bank. In case of repatriation of funds outside Korea, a report
must also be made to the bank or the governmental authority and the evidentia-
ry documents filed for the remittance of funds into Korea must be presented.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
A new owner may claim evacuation from the real property to the lessee based
on his ownership and the lessee may not object to such claim of the new owner
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Legalink – Investments in Commercial Real Property
based on the existing lease agreement (however, since the existing lease agree-
ment is between the lessee and the old owner, the new owner, who is not a party
to the agreement, may not cause such lease agreement to be terminated), unless
the lessee’s right is a registered right. In the event that the lease is registered
in the real estate registry, the lessee may enforce the lease against third parties
other than the existing owner. There are exceptions to the new owner’s right
to claim for evacuation against small business owners and residents under the
Commercial Building Lease Protection Act and the Housing Lease Protection
Act, respectively. Based on the statutes, in the event the rent does not exceed
certain amount, the lessees are protected from such right of the new owner.
For leases that are governed by these statutes, in the event the lessor transfers
the real estate to a third party, the purchaser is deemed to have succeeded the
lease, does not have right to claim for evacuation and is unable to terminate the
lease until its expiry. Whether a certain lease is subject to such statutes cannot
be confirmed by the real estate registry and must be confirmed by the local
government offices.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
– notarial costs: Notarial fee costs 0.15% of the contract price, not to exceed
KRW 3 million in total. As for a property costing EUR 5 million, the notarial
fee would be approximately KRW 11,250,000 (KRW 7.5 billion*0.15%). Since
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Korea
the fee cannot exceed KRW 3 million, the notarial fee for this property would
be KRW 3 million.
– land register: Land registration fee includes a certificate stamp fee of KRW
14,000 and a stamp duty of KRW 350,000. In addition, when purchasing real
estate, a housing bond must be obtained. The cost of bond differs depending
on the location and other details of the real estate, however, in general, it costs
approximately 0.5% of the purchase price. Accordingly, in this case, it would
be approximately KRW 37,500,000 (KRW 7.5 billion *0.15%).
– real property transfer tax: For a purchase by an individual, as mentioned
above, tax of 4.6% of the purchase price would apply (increased in case of
a corporate party). In this case, the transfer tax would be KRW 345 million
(KRW 7.5 billion*4.6%).
– advising lawyer (due diligence): The attorney fees and due diligence period
would vary depending on the complexity of the deal. In general, attorney fees
range from KRW 200,000 to KRW 700,000 per hour of service by one attor-
ney.
– estate agent: Real estate broker fees cannot exceed 0.9% of the purchase price
(excluding VAT) in Korea. Although this amount does not include VAT, real
estate brokers in general include VAT in its fee quotations. Up to the permitted
amount, it is up to the parties to negotiate and agree. In this case, parties may
agree on the broker fee not to exceed KRW 67,500,000.
– others: In practice, a paralegal may prepare the necessary Korean documents
and applies for the registration of the transfer. The paralegal fee for the real
estate registraton is approximately KRW 3,400,000.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Property tax for holding real estate is imposed on a yearly basis. Property
tax is a regional government tax imposed by the offices of the city, ghun/gu
where the property is located. The standard rates and calculation methods for
the property tax are explained in the following. Please note that the regional
government may change the standard rates for the property taxes within a cer-
tain range.
1. Standard of Assessment
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Legalink – Investments in Commercial Real Property
General lands KRW 50 million KRW 100 million Exceeding KRW 100
to be combined and below and below million
Lands subject Field, paddy field, Golf course and Other land
to individual orchard, ranch, luxurious enter-
taxation forest lands tainment land
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Korea
Houses
Vacation K*0.04
homes
General KRW 40 million KRW 100 million Exceeding
and below and below KRW 100 million
Houses K*0.0015 K*0.003 - K*0.005 -
KRW 60,000 KRW 260,000
Building
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
In general any individual person and legal entity may purchase real property
in Korea regardless of his/her/its nationality and/or existence of a Korea branch
office.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
204
Korea
Yes, we frequently assist foreign investors in all these aspects of real estate
transactions in Korea.
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Legalink – Investments in Commercial Real Property
Malaysia
206
Malaysia
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In Malaysia, land transactions are based on torrens system and are governed
by the National Land Code, 1965 (“NLC”). However, if the separate title of
the real property has not been issued, the transaction will be completed by
way of an absolute assignment, where the beneficial ownership of the real
property will be passed to the purchaser. Upon issuance of the separate title to
the real property thereof, a Memorandum of Transfer (“MOT”) (a form pre-
scribed under the NLC) will be submitted to the relevant land office/registry
for registration, wherein the legal ownership of the real property is transferred
to the purchaser.
In Malaysia, it is common for the vendor to appoint a real estate agent to
negotiate initial salient terms (such as the purchase price, completion period)
with potential purchasers. Once the parties reached an agreement on the salient
terms, an offer to purchase will be prepared by the real estate agent to be signed
by both parties. Thereafter, a lawyer will be appointed by the purchaser to
draft and finalise a sale and purchase agreement within 14 days. It is up to the
Vendor whether he/she elects to appoint his/her own lawyer to review the sale
and purchase agreement. The parties will sign the sale and purchase agreement
after they have mutually agreed on the terms and conditions contained therein
the sale and purchase agreement. The purchaser is normally given 3 months
with an extension of 1 month (subject to payment of interest) to complete
the sale and purchase transaction. Upon payment of full purchase price, legal/
beneficial ownership will be passed from vendor to purchaser once the MOT is
registered in favour of the purchaser/ Deed of Assignment duly signed by both
parties and stamped.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
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Legalink – Investments in Commercial Real Property
2. ownership of one unit or lots of units, for example, purchase of a unit of con-
dominium.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. The Malaysian legal system permits joint ownership of real property by
natural person other than minor who is of the age of 18 and below, corpora-
tions having power under their Constitution to hold real property, sovereigns,
governments, organizations and other persons authorized to hold land under
the provisions of the Diplomatic and Consular Privileges Ordinance 1957 and
bodies expressly empowered to hold land under any other written law in Ma-
laysia.
In Malaysia, the owner of land also own the building erected on the land. Any
permanent fixtures or structures on the land shall form part of the land under
the NLC.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
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Malaysia
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
The Purchaser is also required to pay real property gains tax in the event he/
she disposes the real property within 5 years from the date of acquisition.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
With the recent amendments to the Real Property Gains Tax Act 1976, dis-
posal of a real property within 5 years from the date of acquisition of such real
property is subject to 5% tax on the gain.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
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10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Yes, official approval needs to be obtained from the local authority to change
the use from residential to office.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
210
Malaysia
– Estate Agent –It is paid by the person whom appointed the real estate agent.
In Malaysia, it is normally appointed by the Vendor. The scale fee as provided
under the Seventh Schedule (Rule 48) of the Valuers, Appraisers and Estate
Agents Act 1981 is 2.75% on the first RM500,000.00 and 2% on the residue
over RM500,000.00. However, the scale fee may be subject to a maximum
discount of 30% but the minimum fee shall be RM1,000.00. As such, the scale
fee (with a maximum discount of 30%) is RM281,225.00.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
In Malaysia, land owners are required to pay an annual land tax known as
quit rent and is calculated at the rate of 1 cent to 2 cents per square foot. The
quit rent liability generally totals less than RM100.00 per year. Land owners
are also required to pay assessment rates to the local authorities for provision
of services. It varies from state to state. In most states, the assessment rates are
calculated based on the annual rental of the real property in the open market on
the assumption that the real property is rented out.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
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Legalink – Investments in Commercial Real Property
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Any foreign individual person and legal entity are allowed to buy and own a
real property in Malaysia subject to the following conditions:-
a. the value of the real property must be RM500,000.00 and above;
b. obtaining the consent from the state authority under Section 433B of the NLC.
However such consent is not required in respect of real property which is sub-
ject to the category “industry“ or to any condition requiring its use for indus-
trial purposes.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Official approval is only required if the land is not approved for commercial
purpose. The requirements and amount of time necessary to obtain such ap-
proval vary from state to state, normally in the range of 3 to 9 months. Further,
foreign investor is required to obtain the consent of the state authority under
Section 433B of the NLC, as mentioned above. The amount of time necessary
to obtain such consent is normally in the range of 3 to 9 months.
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Malaysia
Yes, our firm would be pleased to assist foreign investors in all these aspects
involved. Please contact Mr. H.Y.Chong at:
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Legalink – Investments in Commercial Real Property
Mexico
Tel: + 52 55-52 80 91 93
Fax: + 52 5-52 81 08 51
www.ccrga.com
214
Mexico
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In accordance with Mexican law, if a real estate purchase and sale agreement
exceeds an amount of approximately USD $1620.00 the agreement needs to be
formalized before Mexican Public Notary. In such case, before the formaliza-
tion is done, the Public Notary shall verify the following:
(i) that the seller is the owner of the property;
(ii) the absence of any liens on the property. If the property is mortgaged, the lien
will follow the property, and therefore, the new owner may have the risk of
forfeiting such property if the seller defaults on payment obligations;
(iii) the existence of any easements on the property, either by law, or by agreement
between seller and his neighbours;
(iv) that the land involved is not considered “agrarian property” (ejido), If the land
is classified as agrarian, it must be transformed into “private property;”
(v) the status of administrative permits such as “water concessions,” or “Federal
Maritime Zone Concessions;”
(vi) the existence/non-existence of toxic traces in the soil;
(vii) that the use regulations allow the use intended for the property; and also
(viii) that the seller has paid the Real Estate Property Tax and water fees for the pre-
vious five years.
Once the transaction is formalized before the Public Notary, the transaction
requires to be registered before the Public Registry of Real Estate Property of
the state where the property is located.
Please note that since Mexico is a Federation, real estate property acquisitions
are mainly governed by the State Civil Code and local regulations.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes, the Mexican legal system does also allow for full ownership, co-owner-
ship and condominium regime system.
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3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, Mexican legal system does allow for joint ownership (co-propiedad).
This is very common, for example, within the condominium regime where
common areas are held jointly.
Different entities could be owner of real property such as: the state, private
persons, corporations, limited liability companies, civil associations and trusts
(fideicomisos).
Although the Mexican Legal system does not explicitly regulate the distinc-
tion between land and construction ownership, it allows in practice for the
distinction of those two types of ownership. However, if the owner of the con-
struction is unable to prove its property title, the construction would automati-
cally be considered as an accessory to the land and therefore, would be deemed
as attached to the land.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes, the real property has to be registered in the Public Registry of Real Es-
tate Property. In terms of real estate property, the title owner has priority over
the good faith possessor. Even if there is a presumption of good faith in favour
of the possessor, he or she needs to prove “original possession”.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
216
Mexico
calculated at a variable rate that goes from 1 to 3.7 of the value of the property,
for example the rate of this tax in Mexico City is of 2%.
The tax must be paid whether the acquisition is carried out through, for ex-
ample, a purchase and sale agreement, donation, trust, merger of companies,
split-off, or payment in kind.
Value-Added Tax:
No VAT is triggered on the sale of land used for any purpose and on construc-
tions used for residential purposes.
VAT shall be paid by the purchaser of structures or constructions used for
commercial or industrial activities at the rate of 16 percent of the amount of the
transaction. In case parts of the constructions are used for residential purposes,
VAT will not be paid on such parts.
Mexican notaries issuing transfer documents will request a qualified appraisal
for tax purposes. Usually, he will obtain certificates of no encumbrance from
the Public Property Registry and certificates by tax authorities evidencing that
real estate taxes are duly paid.
The final deed shall be registered before the Public Property Registry for the
transfer to be valid against third parties.
The proceeds from the sale of real estate in Mexico are considered to be
Mexican-source income. There are two methods to pay the tax on the transac-
tion. The first is through a withholding by the purchaser of an amount equal to
25 percent of the amount obtained without deductions. In the second scenario,
the non-resident seller must appoint a representative resident in Mexico, who
shall notify the person authenticating the public instrument (notary, judge and
broker) of any deductions to which the taxpayer is entitled. The person authen-
ticating the public instrument will file the tax return within 15 days following
the date of signature of the instrument, and in such case, a 30 percent tax rate
for year 2010 will be applicable to the profit.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
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Legalink – Investments in Commercial Real Property
the past 5 years prior to the sale and that the value of such property does not
exceed 6,6 Million pesos ($536,000.00 USD).
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
The minimum term for the lease of farming or residential real estate proper-
ties is at least of one year.
For industrial or commercial lease there is no limitation, therefore the term
and termination conditions must be in accordance with what was agreed by
the parties.
Please note that in case the owner decides selling the property, the lessee
enjoys a pre-emptive right of 30 days to acquire the property under the same
conditions of the sale to be carried out by the owner.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
The person willing to change the use of a building is required to get a permit
from the municipality. The municipality’s urban development plan has to allow
this type of change of use.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
218
Mexico
– estate agent?
– others
The notarial fees vary from State to State and are calculated on the value of
the property. In Mexico City, a transaction of EUR 5 Million would cost EUR
290,000 which stands for 5,8% of the transaction. This would include: public
notary fees, registry cost, appraisal and acquisition tax.
The cost of an estate agent and of an advising lawyer is difficult to estimate,
because of the wide range of expertise and reputations on the market.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Municipal law governs the yearly imposition of real estate property, which
could vary between 1 and 1.5% of the value of the property. This value is
determined by the value of the property when purchased, or reassessed by the
municipality whenever it considers appropriate in accordance with factors such
as inflation or urban improvements.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
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Legalink – Investments in Commercial Real Property
– At the moment not because of the impacts of the worldwide financial crisis
Yes, investing in Mexico could be a very profitable venture. If the residential
sector recently went through a slight decrease, other types of investment such
as touristic real estate and commercial and industrial leasing have been par-
ticularly profitable.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Foreigners may acquire real estate in Mexico, as long as they obtain a Permit
issued by the Mexican Ministry of Foreign Affairs waiving the protection of
his or her home government.
The Mexican Constitution establishes a “restricted zone” (100 kilometers
wide from the borders and 50 kilometers wide from the coastal shores) in
which direct foreign ownership is prohibited. However, Foreign Investment
Law authorizes foreign participation in a Mexican company owning real es-
tate within the restricted zone for non-residential purposes and requires only a
notification to the Ministry of Foreign Affairs; if for residential purposes, title
of the real estate must be held through a trust by a trustee, which must be a
Mexican bank. Approval of the Ministry of Foreign Affairs is required. Long
term leases of real estate are no longer prohibited.
Although foreigners may not acquire direct ownership in the prohibited zone
they can acquire other rights over real estate in the following cases:
a) A Mexican company with foreign investment up to 100 percent may directly
acquire property within this zone to perform non-residential activities, i.e., in-
dustrial, commercial or tourism activities. The acquisition must be registered
with the Ministry of Foreign Affairs.
b) If the real estate is for residential purposes, foreign individuals or companies
and Mexican companies with 100 percent foreign capital stock may acquire
the rights of use and benefit from the real estate through a trust executed with
a Mexican bank. The duration of the trust may be 50 years, and the term may
be extended upon request of any person having an interest in the property.
220
Mexico
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Yes, our firm could definitely assist foreign investors in Mexico. We have
several clients that are real estate developers and/or sellers of undeveloped land
for the purpose of real estate development. There are several programs created
by the Mexican government for medium or low income housing and therefore
opportunities for rent or sale of this type of projects.
221
Legalink – Investments in Commercial Real Property
The Netherlands
De Lairessestraat 73
1071 NV Amsterdam
Netherlands
222
The Netherlands
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
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Legalink – Investments in Commercial Real Property
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
The normal position is that the ownership of land comprises the ownership of
the surface, the buildings and the works forming a permanent part of the land.
For the owners of land it is possible to create rights in rem on their land such
as the right of leasehold (emphyteusis), the right of superficies and apartment
rights and pass these on to third parties. Such rights give control to the surface,
the land and the works to the extent provided in the deed pursuant to which
such rights were created. Such rights can be transferred to third parties separate
from the ownership of the land from which they are derived. Any remaining
rights would remain with the registered owner. The creation and delivery of
rights of leasehold, superficies and apartment rights must be registered in the
national land register. Such registration is a constitutive element for the cre-
ation or delivery of such right in rem.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, the legal system of The Netherlands permits joint ownership of real es-
tate. Natural persons and legal persons can be owners of real estate. This would
include foreign legal persons. Unlimited partnerships would not qualify as reg-
istered owners: one or more managing partners would be registered.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
224
The Netherlands
In The Netherlands, all land is registered in the national land register (Ka-
daster) referred to above. As title to ownership and rights in rem may only be
transferred by registering the same on the land register, the land register is very
accurate. There is a very limited number of title defect, which would not ap-
pear from the registration. A good faith purchaser would not be protected with
regard to such defects which, as implied, hardly ever occur. Title insurance
is not available. A purchaser would rely on the normally rather thorough title
search performed by the civil law notary. Defects, if any, would in due course
loose effect through prescription.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
It is generally not a problem to buy and sell property on a short term basis.
Taxwise, a sale within the first ten years from delivery may be unattractive in
the case of sale of plots used for construction if the aforementioned exemption
from transfer tax was used.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
225
Legalink – Investments in Commercial Real Property
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Whether the use of a building from residential use to office space is allowed
depends on the municipal zoning restrictions applicable to the area in which
the real estate is situated. Exemptions from the current zoning restrictions may
usually be obtained if a change of use conforms to future public plans for the
area. If and when the residential real estate is a leasehold right, the owner of
the remaining interest in the land would have to agree to a change of use –and
would usually make this agreement subject to an increase of the retribution
payable for the leasehold.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
226
The Netherlands
– Notarial fees are normally paid by the purchaser who will have the privilege
to choose the notary to be employed. The fees will depend on the agreement
made by the purchaser with the notary. The fees will in most instances amount
to about 3/4% of the purchase price.
– Costs of entry in the land register depend on the assessed value of the land.
These costs are slightly in access of nominal amounts.
– Transfer tax normally amounts to 6% of the assessed value. See above.
– The fees of advising lawyers are calculated on basis of agreement with their
clients. Such fees would in most cases be based on time spent and the agreed
rate. Due diligence would in most cases be included in the notarial services.
– The fees of the real estate agent also depend on the agreement with the client.
Often, a success fee is agreed, stating a percentage (ranging from 1% to 1,5%)
of the purchase price.
– VAT is charged on most fees and costs.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Professional caretakers will often charge on basis of the value of the property
or on basis of rental income. Some will charge on basis of time spent. Charges
may range from 4,5% (shops) to 6% (residential) of the rental income.
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Legalink – Investments in Commercial Real Property
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
– Most foreign investors make the choice between investing directly or through
companies depend on tax considerations. It will primarily depend on the coun-
try of origin of the investor whether a foreign or a Dutch vehicle is used.
– There is a number of real estate funds which invest in Dutch real estate. The
choice depends on the foreign investor’s strategy.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
It depends on the type of business concerned whether local permits are re-
quired to run such business. In the case of EU nationals and nationals from
treaty countries requirements may not discriminate and can in most instances
easily be obtained. In the case of nationals from other countries it would de-
pend on the type of business concerned.
228
The Netherlands
229
Legalink – Investments in Commercial Real Property
New Zealand
P O Box 7311
Auckland 1141
New Zealand
www.lowndeslaw.com
lowndes@lowndeslaw.com
230
New Zealand
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
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Legalink – Investments in Commercial Real Property
ity with jurisdiction over the registered land title system. The workspace is
accessed by registered conveyancing professionals acting for both buyer and
seller. Briefly, a workspace (or e-deal) is set up for each transaction. Instead
of signing paper transfers, each party to a transaction signs an Authority and
Instruction Form (A&I) which authorises and directs its conveyancing pro-
fessional to undertake the transaction on-line. The e-deal requires the various
electronic documents to be pre-validated by the parties and by the Landon-
line system and for the documents to be electronically signed and certified by
the conveyancing professionals. Once the transaction is properly arranged on
Landonline, each conveyancing professional undertakes to the other that the
electronic documents have been properly signed and will be released to the
other at settlement.
On settlement day, the lawyer for the buyer will drawdown any mortgage
advance from a lender and, provided the seller’s lawyer is ready to settle, pay
over the amount required to settle and finalise transfer of the title to the buyer.
Title is transferred electronically on Landonline and the buyer’s name is en-
tered on the electronic land title register.
If the sale was initiated through a real estate agent, the keys will be made
available from the real estate agent for the buyer to collect as soon as settle-
ment is completed.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
New Zealand law recognises two main estates in land, freehold and lease-
hold.
Freehold estates can be fee simple estates (ownership of the whole of the in-
terest in the land), life estates (ownership for life) or stratum estates (ownership
of separate stratum estates or units created within the greater estate).
In terms of the stratum estate, in New Zealand unit titles were created (under
the Unit Titles Act 1972) to allow people to own an apartment in a building
and to allow for multiple ownership of the common spaces and facilities, such
as driveways and lifts.
A unit title can be bought and sold, or leased or mortgaged. It is made up of
the following components:
– Ownership of the particular units (which can be the apartment and the car
park).
232
New Zealand
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
There are a number of entities that can own property. This include limited
liability companies, incorporated and unincorporated societies, trusts, joint
ventures and partnerships (including limited partnerships).
There are two main ways in which real property can be jointly owned in New
Zealand, as tenants in common or as joint tenants. These are detailed below:
Tenants in Common
Tenants in Common is for ownership by two or more people. There is no limit
to the number of people that can hold title by Tenants in Common.
Property can be owned as Tenants in Common by people who are related and
who are not related. Ownership by Tenants in Common can be held in equal
or unequal shares. For example, John could hold 50% ownership, Mary 25%
and Sarah 25%. All tenants have the right to possess the property. No tenant
can exclude the other.
Upon death, the interest of the deceased co-tenant will pass to the co-tenant’s
heirs. If Sarah died, John would still hold 50%, Mary would own 25%, but
Sarah’s 25% would pass to whomever she designated in her will (or in accor-
dance with the intestacy rules).
Joint Tenants
Each person owns an equal share and if one party dies, title transfers to the
survivor, regardless of what a will may specify.
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Legalink – Investments in Commercial Real Property
As a general rule, buildings are affixed to and form part of the land on which
they are built.
It is more common in New Zealand for ownership of the land to be com-
bined with ownership of the building erected on it. However, there are some
instances of leasehold title where the land is owned by the freehold owner and
the buildings are owned by the lessee, subject to the terms of the lease. The
lessee pays rent to the owner of the land.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Land ownership in New Zealand is based on the Torrens System of land reg-
istration.
The Torrens system provides a public register recording all material facts
relative to the title.
Once a registration is accepted the New Zealand Government guarantees
what is called an ‚indefeasible‘ title. The major advantage of the system is that
anybody dealing with land in New Zealand is saved the effort of investigating
back to the root of the title, and is able to rely on the details on the face of the
register.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
This requires an assessment of the buyer and/or seller’s position from a tax
perspective on a case by case basis which is beyond the scope of this note. A
general overview follows.
New Zealand has abolished stamp duty (ad valorem transfer tax) on the trans-
fer of real property. Selling real property may give rise to taxable income /
capital gain for the seller, depending on the owner’s specific circumstances.
Buying and selling a family or private home usually has no tax conse-
quence.
However some people buy family homes intending to resell them and some
are doing this on a regular basis as a way of earning income.
234
New Zealand
If a person has a regular pattern of buying and selling family homes, this may
also be considered property speculation or dealing for tax purposes. Tax will
be paid on a capital gain, however long the property is held.
Generally, a person does not pay tax when selling an investment property ex-
cept for any depreciation recovered. However, each time a property is sold it is
important to consider if the seller is still a residential investor or has by course
of dealings become a dealer.
If a person buys property with the intention of resale, any profits from the
later sale are likely to be taxable.
It is important to seek specialist tax advice in relation to these issues.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
If you buy the reversionary interest in relation to leasehold property then the
general position is that, subject to the terms of the lease, you take the property
subject to the lease. The buyer assumes the rights and obligations of the les-
sor.
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Legalink – Investments in Commercial Real Property
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Cities in New Zealand are broken down into local governments or authori-
ties. Each local government has a District Plan which sets out the permitted
and non-permitted uses of properties in specific zones. If you wish to change
a property from residential to commercial use, then you would need to apply
to the local government concerned. Non-complying uses as specified in the
District Plan are not permitted.
The District Plan would need to be reviewed during your due diligence pro-
cess to ensure whether or not the property in question is suitable for the par-
ticular intended purposes.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
236
New Zealand
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
There are no annual tax obligations or land taxes in New Zealand. Land own-
ers are only required to pay annual rates levies which are set by the local gov-
ernment and/or regional council, depending on the location of the property. The
levies are based on the current rating valuation which are re-valued, usually
every 3 years. The percentage of the increase of levies varies between 3-5%,
but this is only an estimate.
In certain circumstances, for example if you intend to trade the property, you
may be required to pay income tax and/or Goods and Services tax (GST). GST
is an ad valorem tax on the value of a supply of goods and services.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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Legalink – Investments in Commercial Real Property
The costs for managing commerical property in New Zealand are wholly
dependent on the type of property being managed, the floor area of the pro-
perty, location and number of tenants. Inquiries should be made at the time of
completing a due diligence enquiry.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
238
New Zealand
The District Plan will determine whether you may operate a business on any
particular land. It is therefore important to check the zoning described in the
District Plan before purchasing a property.
If the land is not zoned for the business use contemplated, you may be re-
quired to make an application to the relevant Council for a change to the land
use for this property. This is a specialist area of work.
Generally speaking, a foreign company may do business either by incorpo-
rating a local subsidiary, purchasing an existing New Zealand company as a
subsidiary or establishing a branch and registering it as an overseas company
with the New Zealand Companies Office.
Lowndes Associates
P O Box 7311
Auckland 1141
New Zealand
www.lowndeslaw.com
lowndes@lowndeslaw.com
Thomas@lowndeslaw.com
239
Legalink – Investments in Commercial Real Property
Norway
Kinoveien 14
P.O.Box 216
1301 Sandvika
Norway
240
Norway
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Real estates are sold either directly by the formal owner or indirectly as sale
of the shares or parts in a single purpose company which again is the formal
owner of the real estate.
All real estates in Norway are listed in a registry administered by the state.
The purchaser must by formally registered in the registry to obtain protection
against the seller’s creditors, third parties acting in good faith etc. The key in a
direct real estate transaction is therefore the formal registration of the transfer
of ownership. There are some formalities necessary before the transfer will be
registered. These formalities varies according to the type of real estate, the size
of the property etc.
The parties can decide how they will handle the process. Normally the seller
or the parties in common appoints a lawyer or a real estate broker to handle the
formalities and to secure the financial interests of parties and the mortgagors.
If the sale is an indirect transaction the procedure will be more like the proce-
dures for sale of businesses or companies.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. The formal construction of owing a unit is common for apartments but
also possible for commercial properties. The owner of such a unit will basically
have the same rights for his unit as an owner of the real estate.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
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Legalink – Investments in Commercial Real Property
The owner of the land is considered to be owner of the building as well. There
are some modifications construed i.a. as leasing contracts.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes, all real estates are registered. A purchaser in good faith will in general be
protected against encumbrances or liens not formally registered.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
The tax is 2.5% of the purchase prise in a direct transaction. If the transaction
is done as sale of shares or parts there will be no such tax.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
The answer depends on the sort of real estate. For houses for personal use
(homes and holiday homes) there are some requirements. For commercial
properties there are no such requirements.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
242
Norway
The lease contracts can only be terminated if the contract opens for such
termination.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
The answer to this will depend upon the estate in question. The tax is 2.5 %
(EUR 125.000). The estate agent, if any, is normally paid by seller. Legal costs
for buyer will normally be in the range EUR 5.000 to EUR 20.000.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
The land tax is not implemented fully in Norway. This have to be considered
for each estate individually.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Normally a caretaker will charge a fee in the area 1-4 % of the rent.
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Legalink – Investments in Commercial Real Property
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
It differs depending on the sort of land, the sort of business and if the investor
is from an EU country.
244
Norway
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Legalink – Investments in Commercial Real Property
Panama
Rosas y Rosas
246
Panama
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In Panama, real estate transactions are governed by the Civil Code, Com-
mercial Code and a group of regulations as special laws, executive decrees
and resolutions regarding the subject matter. In our country, the signing of the
purchase agreement has to be recorded in the Public Registry Office for the
transaction to be effective. Payment is usually made when the recording takes
place, via a payment letter from a bank, or the funds that a third party has held
in escrow.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. Our legal system permits joint ownership of real property and it can be
by two or more natural persons or a juridical person as a corporation, an LLC,
A Private Interest Foundation or other type of entity recognized by the law.
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Legalink – Investments in Commercial Real Property
have property titles for each one of them and the ownership becomes effective
since the moment of the recording of the title in the Public Registry.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
In Panama, real property transfer tax has to be paid and the percentage is 2%
of the purchase price. Also a 3% of the purchase price has to be paid in con-
cept of capital gains. Plus, the registry rights and the notarial rights have to be
included in the expenses.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
In Panama there is no limitation. You can buy a property and sell it after a
short period of time without incurring in extra taxes.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Panama does not impose a limitation to the transfer of funds. If funds are
transferred to a Head Office, other taxes could apply.
248
Panama
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
In Panama, the general rule is that the term of the lease contract has to be
respected; in other words, the purchase of a property does not break the lease
contract. In the case of commercial real estate, it might be probable that the
lease contract is recorded in the Public Registry, so the terms of the contract
will be enforceable to new owners and third parties and that´s why it is so im-
portant to make the preliminary investigations before purchasing a real estate.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
The first thing that has to be taken in account is the zoning. In Panama, there
are areas where is not permitted to build or establish commercial activities
because they are completely residential. Also, this could be subject of public
hearings in order to evaluate the diverse opinions of people.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
– Notarial costs: these costs will vary depending on the length of the deed.
– Land registry: About US$16,500.00
– Real estate transfer tax: if the purchase price is EUR 5 Million, the real estate
transfer tax is US$130,000.00.
– Advising lawyer (due diligence): this will depend on the agreement but it
could be between 1% and 2% of the purchase price.
– Real Estate agent: 5% of the net purchase price.
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Legalink – Investments in Commercial Real Property
12. What tax aspects are directly involved when holding a property, for exam-
ple yearly land tax after the transfer of ownership and what is the percent-
age of it?
In Panama, you have to pay property tax on real estate and the amount will
depend on the registered price of the property, which typically remains the
same year after year except when there are government ordered appraisals
which do not take place ordinarily. These percentages vary from 1.75% to
2.10%. As a manner of incentive to construction and purchase of real estate,
there is an exemption in new horizontal properties, where the first 20 years are
exempt of this tax. In the case of transfer of ownership, the percentage is 2% of
the purchase price. Any sale within said 20 year period will cause property on
the aggregate of the original amount.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
We would advise to invest directly in real estate and through real property
funds. Although it is no guarantee towards the future, in Panama the worldwide
financial crisis has not impacted severely. Our banking system has remained
strong and the real estate investments are still a good source of profit.
Panama has traditionally seen high quality construction in both commercial
and residential development, and it continues nowadays with an important in-
flux of foreign investment in the sector.
250
Panama
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Individual persons and legal entities are allowed to buy property in Panama.
The only restriction regarding the nationality is that foreigners cannot buy any
land or property in less than 10 kilometres from the border with the other
countries next to ours.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
First, the ownership has to be recorded at the Public Registry in order to be-
come effective. The official approvals will depend on what the business will be
oriented to. Most of the approvals are managed by The Ministry of Commerce
and Industries and the principal requirement that has to be completed is the
issuance of a notice of operation.
Yes, our law firm, ROSAS Y ROSAS, can assist investors in all of the above
mentioned aspects as in fact our real estate practice regularly involves similar
issues. Contact persons for questions on commercial real property and other
real estate issues:
ROSAS Y ROSAS
Juan Carlos Rosas
jcrosas@rosaslaw.com
Rolando A. Guevara A.
rguevara@rosaslaw.com
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Peru
Estudio Grau
252
Peru
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In Peru real estate transactions are governed by private law. The Peruvian
Civil Code is the applicable law that governs the relationship between owner
and seller. Private parties, both buyer and seller, negotiate commercial aspects
of the transaction, such as price of the real estate or the warranties that shall
be given by the seller to the buyer. Acceptance to a firm offer constitutes the
agreement, which seals transfer of real estate to the buyer. For certainty and
better right, Sales Agreements (the “Agreement”) is drafted in writing, nota-
rized into public deed, and filed before the Local Real estate Property Register,
where the property is located.
The Agreement contains every aspect of the prior negotiations that among
others include the following: (i) sales price, (ii) financing terms, (iii) condition
of the property, (iv) when the buyer gets the full possession of the property and
all the benefits and costs of it.
2. Does your legal system permit different sort of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. The Peruvian legal system acknowledges joint ownership. More than
one person (individuals or entities) can jointly own a property as co-owners. In
case of joint ownership of real estate property, the Peruvian Civil Code estab-
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lishes the presumption that all shares of the property are equal unless proven
otherwise. Domiciled or non-domiciled entities can own real estate in Peru,
provided property is not located within the 50 kilometres of country borders.
According to the Peruvian Law the ownership of the land includes the own-
ership of the constructions built upon it. However, the owner of the land may
constitute different single rights over the building, to the benefit of different
owners.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
In Peru, registration of real estate property is not mandatory but highly rec-
ommended. However, every registered title before Local Real estate Property
Register is considered public information and, hence, presumed to be known
by all Peruvian citizens. Therefore, in order to protect the owner from third
parties and good faith purchasers, it is highly recommended to register the
property in the Local Real estate Property Register and every single right upon
it. The exception is mortgages over property, for which property (and the mort-
gage title) has to be registered.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
According to Peruvian Law real estate property transfers are subject to “In-
come Taxation“ and Alcabala. The rates of the first tax in question vary depen-
ding if the seller is a natural person or a corporation that domiciles in Peru, or
a natural person or a corporation that domiciles out of the country.
If the seller is a natural person that domiciles in the country a 6.25% rate
is applicable over 80% of the gross income obtained because of the property
transfer. If the seller is a natural person or corporation that has its residence
254
Peru
out the country a 30% rate will be applicable over the gross income obtained
because of the property transfer.
The acabala is calculated according to the following equation: tranfer price
minus S/. 36,000 multiplied by 3% of the transfer price.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
The Peruvian tax law regarding this matter does not establish the specific
obligation of holding the property for a certain term. Nevertheless, if a natural
person domiciled in the country transfers more than two times a property in
less than one year the income taxation rate would change from the 6.25% rate
explained above to a 30% rate.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes. In Peru there is no restriction regarding this matter. Therefore the seller
is able to transfer the money obtained due to the property transfer out of the
country once the deal takes place.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
The Peruvian Civil Code establishes that the buyer must respect the lease
contract only if it is recorded in the Local Real estate Property Register. In
this case, once the buyer becomes the new owner of the property it becomes
the new landlord as well, assuming all the rights and obligations the previous
owner of the property had due to the lease agreement.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
This must be check for every purchase case separately taking into account
the following two aspects: (1) if the building permit allows the intended use of
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the purchaser and (2) if local authorities have establish certain restrictions for
example for commercial establishments in areas of residential property.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
– Notarial Costs.- The costs vary depending of the Notary Public and the amount
of the property transaction. In the city of Lima the notarial costs for the transfer
of a property for an amount of 5 Million Euros would be approximately S/.
10,000.
– Land Register.- S/. 3,600.
– Real estate Property Transfer Tax.-
– Income Tax
– If the seller is a natural person that domiciles in the country
S/. 897,500.00.
– If the seller is a natural person or corporation that has its residence out the
country an amount of S/. 5,385,000.00.
– Alcabala
– S/. 537,420.
– Advising Lawyer (due diligence).- Depending on the terms convened with
the lawyers.
12. What tax aspects are directly involved when holding a property, for exam-
ple yearly land tax after the transfer of ownership and what is the percent-
age of it?
Real estate owners are oblige to pay a Real estate Tax each year, as well a
periodic payment for the services rendered by the municipality where their
property is locate.
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Peru
The real estate tax rate depends on the current value of the property. If the
property value goes from S/. 0 to S/. 54,000 the rate is 0.2%; from S/. 54,001
to S/. 216,000, the rate is 0.6%; and from S/. 216,001 and beyond the rate is 1
%. The real estate tax must be calculated in an accumulative way.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Peruvian law does not establish any special conditions for this service. In that
case, the hiring of a caretaker of the property and their economic conditions
must be regulated in a recruitment agreement.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
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The Peruvian law establishes equal treatment for national and foreign invest-
ment. However, the Peruvian Constitution forbids foreign investors to purchase
property within the 50 kilometers of the country border. Property in Peru can
be owned by any individual or legal entity regardless it has no local branch
office in the country.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
The official approvals and local permits vary depending on the type of busi-
ness the foreign investor would like to run in the country.
Yes, Estudio Grau would be pleased to assist foreign investors in all the as-
pects involving the analysis and evaluation of profitable investment products in
real property, the developing of construction projects and all the legal aspects
involved. Furthermore, Estudio Grau can advise buyers with the sale decision
process by means of GIS Real Estate, a client-tailored product aimed at provi-
ding a fast and timely decision making in relation to legal, geographical, social,
and environmental information regarding any of the property units located at
the focused area.
258
Peru
259
Legalink – Investments in Commercial Real Property
Portugal
260
Portugal
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
The transaction of a real estate in Portugal usually begins with the execution
of a purchase and sale promissory agreement detailing the conditions of the
sale, according to which the owner promise to sell the property, and the buyer
promises to buy it, at an agreed price and within an agreed period. This agree-
ment usually involves the payment of a deposit. As a rule, if the buyer fails to
complete the agreement, he will lose the deposit; if the owner fails to complete
the sale, he must repay twice the amount of the deposit.
Until recently the transfer of property had to be executed through a public
deed and the property would transfer from seller to buyer with the execution
of such buyer.
Since the 1st January 2009, with the real estate simplification and dematerial-
ization of registration acts made through enactment of decree law no. 116/2008,
the transfer of real state may be executed by private document, provided the
signatures are certified by a lawyer, chamber of commerce and industry, public
notary, registration services or para-legal.
However it is still frequent – not to say the rule – to use the previous manda-
tory procedure of transfer of property by means of a public deed at a notary.
On completion of the above notarial act the transfer of the property has to be
registered before the land registry office. This registration is not legally manda-
tory but strongly advisable as the registration is the only act which confers an
erga omnes (opposable to third parties) effect to the capacity as owner.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. In Portugal it is possible to own the whole land or only a fraction of the
land (plot) or building (autonomous unit), if the land / building is subject to an
allotment permit / horizontal property regime.
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3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes, in Portugal it is possible to have a different owner for the land and the
building: the first is the nu-proprietário and the second the superficiário.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Land and buildings property are subject to public registration before the land
registry office. A purchaser is protected if the acquisition is the first to be reg-
istered.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
262
Portugal
Stamp tax:
A property purchase is subjected to a Stamp Duty of 0,8% of, as a rule, the
declared value.
Municipal property tax (IMI)
Every year the owner of any property is subject to pay an annual municipal
property tax. This charge is due by the owner of the property at 31 December
of each year. If the tax amount exceeds € 250,00 then it will be divided into
two equal payments, the first for payment in April, and the second, for payment
in September.
The IMI rates are variable from municipality to municipality and are revised
each year.
Value added tax (IVA)
Transfer of property does not attract VAT, although in certain cases the seller
may waive the exemption if the buyer uses, in whole or in part, the building
for taxed activities.
On the side of the Seller the sale can attract plus value in certain circum-
stances.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes as a rule and at least from the perspective of sale of a real estate.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
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The transfer of a property does not entitle the new owner to terminate any
lease contracts in force. The acquirer only succeeds in the previous owner
rights and obligations. Also, the tenant has a pre-emption right in the transfer
of property leased for more than 3 years.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Amendments to the use license are accepted, being however subject to city
council authorisation. For buildings built before 13th August 1951 no license is
needed on the perspective of the real estate (e.g., an industry might still need
official approval).
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
264
Portugal
As referred, the only yearly land tax applicable after transfer of ownership is
the Municipal property tax (IMI).
This charge is due by the owner of the property at 31 December of each year.
If the amount exceeds €250,00 then it will be divided into two equal amounts,
the first for payment in April, and the second, for payment in September. The
IMI rates are variable from council to council and reviewed annually.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Caretakers are not that usual in Portugal. At least 1% of the value of the prop-
erty is considered as annual remuneration plus an hourly fee if applicable.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
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16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Yes, we would be pleased to assist foreign investors once the standard proce-
dure of conflict check is satisfactorily concluded.
For any further information please contact Nuno Moura Roldão, partner of
real estate department at:
266
Portugal
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Legalink – Investments in Commercial Real Property
Russia
268
Russia
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
The seller and the buyer enter into the real estate purchase agreement by
drawing up a separate single document in written form. Written form of the
real estate purchase agreement is an essential element for making a real estate
transaction valid in Russia.
The parties to the agreement shall set forth precise details of the real estate,
including information about the location of the real estate or stipulate whether
it is a part of the real estate facility (the details shall correspond with official
documents of state authorities responsible for record keeping and inventory).
Should these details be absent in the agreement, it is believed that parties did
not agree upon the property to be conveyed and, hence the purchase agreement
will be invalid.
Real property is to be handed over under the transfer deed signed by the par-
ties (transfer may be also effected after the transaction).
Once t–he purchase agreement is signed, the buyer files an application with a
state registry of rights. An application shall be filed alongside with a number of
documents, which sometime may be rather cumbersome and time-consuming
to collect.
Transfer of ownership in the real property is to be registered within 30 days
(general rule) from the date of application. Property in the real estate vests to
the buyer from the moment of the state registration.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Russian legal system allows for both ownership of the whole land/construc-
tion and of one unit/units. However, the notion of condominium was removed
from Russian legal system (with the adoption of Housing Code of the RF). Still
there are some categories similar to condominium, but they are known only to
housing area (for instance, “householder society”).
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3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Russian legal system permits joint ownership, where two or more entities take
ownership in the real property, thus the real property may not be parted without
modification of its particular purpose. Joint ownership in the real property can
be created by law and by the agreement of the parties.
There are two types of joint ownership in the real property:
1. Participatory share ownership (equity in the ownership can be determined)
(«долевая собственность»).
2. Joint ownership without determination of the equities («совместная собс-
твенность»).
It shall be noted that equity in the real estate property is not a separate physi-
cal object (room, premises or square meters), but a fractional number – part of
the right to the real property.
Joint ownership without determination of the equities exceptionally created in
case of: property of the spouses; farming enterprise; non-for-profit household.
Real estate can be owned by the Russian Federation, subjects of the Russian
Federation and local authorities, individuals and legal entities.
270
Russia
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
All real estate and transactions therewith are subject to state registration. The
property right to the land and/or the building evolve only from the moment of
its state registration. Any encumbrances and charges to the land shall be regis-
tered in the real estate registry as well. Hence any unauthorised entries into the
registry are not permitted without prior consent of the land owner.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
In the course of a real estate purchase no taxes and charges are to be born
by the Buyers, except for VAT (amount of which is usually included by the
Seller in the total value of the real property). In the meantime, the Sellers are
to cover:
1. VAT (legal entities and sole proprietor) – 18% of total value of the transaction
(this is an indirect tax and paid by the Buyer but through the Seller);
2. Income tax (legal entities) – 20 % of the income for the corresponding fiscal
period that amounts to 1 year;
3. Individual income tax (individuals) – 13 % (for tax residents) of the income
for the corresponding fiscal period that amounts to 1 year (30 % - for tax non-
residents).
Real property transfer tax is not known to the legal system of Russia, but it
possibly has something to do with the state duty for registration of right trans-
fer (that is 15 000 Rubles or approximately 350 EUR regardless of the value
of the transaction).
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Although it is not a problem to buy and sell property on a short term basis,
the buyer will incur losses connected with charges for state registration (15 000
Rubles or approximately 350 EUR per each registration of right transfer). Fur-
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Legalink – Investments in Commercial Real Property
thermore, individuals may receive income tax deductions when selling real es-
tate which they owned for less than 3 years (up to 250 000 Rubles or approxi-
mately 6 250 EUR) or deduct the incurred expenses from their taxable income.
When the real estate was in ownership for more than 3 years, individuals are
entitled to refund of total value of the purchase agreement. Legal entities have
a right to deduct the incurred expenses from their gains.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes, international investors enjoy the full range of guaranties, including the
right to repatriate the funds.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
Lease agreements are not repudiated or amended with the shift of the owner-
ship in the real estate. A new buyer may terminate them only with the consent
of the lessees.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
272
Russia
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
In case of direct investments in the real estate (real estate purchase agree-
ment):
– notarial costs – 0 EUR
– land register – approx. 350 EUR (15 000 Rubles)
– real property transfer tax – 0 EUR
– advising lawyer (due diligence) - unlimited
– estate agent - unlimited
– Others – 0 EUR
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12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Individuals and legal entities are levied with property tax and land tax. Land
tax is determined by local authorities and shall not exceed 0,3 % of the cadas-
tral value of an agricultural land and 1,5 % of the cadastral value of other lands.
Company property tax is determined by constituents of the Russian Federation
and shall not exceed 2,2% of the average annual value of the property.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
We have to admit that the market of professional caretakers over the real
property is not widely-spread in Russia and has not received yet the same rec-
ognition as it has in western countries. Analytics proclaim, that the reasons for
such a creeping development of the institute of professional caretaker in Russia
are as follows:
– Insufficient number of companies which offer such services;
– Low quality of the services of the professional caretakers;
– Owners of real property are reluctant to hand over their estate to the other
company;
– Lack of information on the market.
Nevertheless, professional caretakers are present (“Property Management
Company”, “Noble Gibbons”, “Hines”). The charges of the managing compa-
ny amount to 5 % of the basic rental payments. It shall be noted that execution
of some operations (for example, maintenance of fire safety) require license to
be obtained by the professional caretaker.
274
Russia
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
Foreign individuals and legal entities are granted with national regime. There
are no general restrictions for purchase of real property in Russia subject to
several exceptions. For example, foreign entity may not take ownership of the
agricultural lands and lands of the boarder territory.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Efforts of investor greatly depend on the form of business he/she would chose
for establishment of economic presence in Russia (costs are above given). Of-
ficial approvals for foreigners are the same as for Russian citizens and legal
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Legalink – Investments in Commercial Real Property
We will be pleased to assist and consult foreign investors on all legal aspects
involved in these contexts.
276
Russia
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Legalink – Investments in Commercial Real Property
Singapore
CitiLegal LLC
7 Temasek Boulevard,
#21-02 Suntec Tower One,
Singapore 038987.
278
Singapore
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
All the answers in this questionnaire have been limited to commercial real
property, and do not include residential real property.
In Singapore, for commercial property, the buyer and seller would usually
negotiate the commercial terms of the sale and purchase through their real
estate brokers or agents. The real estate agent usually provides a standard form
of an Option to Purchase (“OTP”) to be entered into by the parties. The OTP is
issued by the seller in exchange for an option fee of 1% of the purchase price
(“the Option Money”) provided by the buyer.
The buyer is given a deadline (which is usually 2 weeks from the date of
the OTP) within which he has to exercise the OTP, failing which the Option
Money will be forfeited by the seller. The buyer exercises the OTP by sign-
ing “Acceptance Copy” in the OTP and delivering the same together with the
deposit of 5% or 10% of the purchase price, less the Option Money (“Bal-
ance Deposit”) to the seller’s counsel who are authorised to hold the Balance
Deposit as stakeholders pending completion (“Legal Completion”). See the
example 1 below.
The OTP usually states the purchase price, deadline for exercise of the OTP,
any conditions to exercise of the OTP, warranties on the property (if any),
(the practice is for the buyer to inspect and buy the property on a “as is where
is basis”), conditions under which the buyer can rescind the contract and the
completion date. Further, the OTP will also state that it is subject to “THE
SINGAPORE LAW SOCIETY’S CONDITIONS OF SALE 1999” so far as the
same are applicable to a sale by private treaty and are not varied by or inconsis-
tent with the special conditions in the OTP. In the event of any inconsistency,
the OTP terms shall prevail.
OTP must also be stamped within 14 days from the date of exercise of the
OTP (for existing property) or date of the Sale & Purchase Agreement (for
development cases).
See Part II below on Costs For Transaction for more details. Completion
date is usually between 8-12 weeks from the date of exercise of the OTP. See
example 1 below for a summary of the general steps and procedures.
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Legalink – Investments in Commercial Real Property
Example 1
– Price of property: S$1,000,000
– Option money: S$10,000 (being 1%) paid in exchange for OTP dated
1.1.2010
– Balance payable: S$40,000 OR $90,000 (being balance 4% OR 9%) paid when
Option is exercised (no later than 14.1.2010)
– Stamp fees to be paid on the OTP (within 14 days from 14.1.2010 i.e. by
28.1.2010)
– Balance purchase price payable: $950,000 OR S$900,000 (being the bal-
ance 95% OR 90%) to be paid on Completion (being 8 – 12 weeks from
14.1.2010).
Except for large transactions, frequently, the parties engage counsel only after
the buyer has obtained the signed OTP from the seller after his payment of
the Option Money. However, it is advisable that the parties engage counsel to
review and advise on the terms of the OTP before they exercise the OTP. This
is because once the OTP is exercised, a binding contract is constituted (unless
the OTP provides otherwise).
After the OTP has been exercised till legal completion, counsel for the buyer
will carry out various checks on the property via “legal requisitions”. These
are requests sent to various government bodies, being Rapid Transit Systems,
Street Works, Water Reclamation Network Department (Sewerage), Building
and Construction Authority, Environment Health Department, Inland Revenue
Authority of Singapore (Property Tax), Urban Redevelopment Authority (Chief
Planner), Central Building Planning Unit (Drainage). Counsel will also apply
for a Road Line Plan to check if there are any lines of road/tunnel reserves on
the property.
The buyer’s counsel will also carry out bankruptcy / winding-up searches on
the seller and liase with the seller’s counsel prior to completion to ensure that
all discharge of mortgage documents have been executed by the bank, obtain
evidence of payment of all outgoing liabilities (eg. property tax and mainte-
nance contributions till completion date.)
Legal Completion is when the legal transfer of ownership/title passes to the
buyer (and with it usually possession as well unless provided otherwise).
Counsel for the buyer will advise on and effect various formalities such as the
execution by the buyer, stamping and filing of the instrument of transfer and
mortgage (if any) with the Singapore Land Authority, various filings with the
property tax department of the Inland Revenue Authority of Singapore inform-
ing the change of ownership.
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Singapore
Additional matters
If the seller has a mortgage over the property, this has to be discharged on
completion. If the buyer has taken financing to assist in the purchase of the
property, there will be additional documents and requirements in relation to
these aspects.
Furthermore, certain types of commercial property are ultimately owned by
a government authority, the 3 main ones in Singapore being Jurong Town Cor-
poration (JTC), Housing Development Board (HDB) and Urban Redevelop-
ment Authority (URA). These authorities own the reversionary title on certain
property but grants long term leases which are registrable interests in land (Eg.
JTC has various plots of land zoned for different types of industrial uses and
typically sells leases of 30 years with an option for a further 30 years). Sale
of such commercial property is subject to the consent of the relevant author-
ity and the seller and buyer have to comply with certain conditions such as
environmental baseline studies and decontamination works for certain types
of JTC properties.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
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Generally, the definition of land includes the buildings and fixtures on that
land. However, this is subject to a very limited exception in relation to Malay
stilt houses (which would not apply to commercial property) and the modifi-
cation in recent times to allow for strata title. Such a clearly defined parcel of
airspace (i.e. strata title) can also be separately owned and registered as land.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Most land in Singapore these days are registered under the Land Titles Act
(LTA) and Land Titles (Strata) Act. The Singapore Land Authority (SLA)
maintains a Land Register in which instruments and dealings which affect LTA
land must be registered. Any person who becomes a registered proprietor of
registered land will hold that land free of encumbrances, liens etc except as is
registered or notified in the Land Register, giving such owner indefeasible title
to the property, save for certain exceptions.
A purchaser (in good faith and for valuable consideration) of property from a
previously registered proprietor (whose indefeasible title may be challenged)
may claim the benefit of indefeasiblity.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
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Singapore
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Save for any applicable withholding tax (see above), there are no legal re-
strictions in Singapore on repatriation of funds out of Singapore.
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9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
The use of a building depends on the permitted use as regulated by the Master
Plan of the Urban Redevelopment Authority (URA). A change of use requires
the URA’s prior written consent and may be subject to conditions and fees.
There are cases of change of office space to residential use, however, we are
not aware of any change of use of a building from residential to office space. It
seems unusual that URA would allow such change of use.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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Singapore
Legal fees in acting for (i) the buyer (as purchaser and S$10,000
borrower) ranges from $10,000 onwards depending on onwards*
(i) the complexity of the transaction and (ii) the type
of the commercial property, eg.* JTC properties would
definitely bring about a higher fee
1. Estate Agent’s fees – usually paid by Vendor. Estate Agents usually charge 1%
of the sale price (plus GST if agent is GST registered)
2. Others – If Purchaser is taking a loan, he is required to pay legal fees of the
Bank’s/Mortgagees’ solicitors.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
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Legalink – Investments in Commercial Real Property
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Management agents charge different rates. Rates also depend on various fac-
tors such as the number of properties managed, how many of the properties
are leased or are vacant, the state and condition of the properties and where
applicable the building where the properties are comprised in. Agents charge
monthly fee from S$200 to S$700 per property to S$6,000 for a small building
of 13 storeys (excluding the costs of onsite supervisor/technician and property
manager).
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
286
Singapore
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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Slovakia
Mlynske Nivy 45
Apollo Business Center
SK - 821 09 Bratislava
T: +421 2 5828 2828
F: +421 2 5828 2829
office@dedak.com
www.dedak.com
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Slovakia
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Real estate transaction starts with an offer to purchase or sell a real estate.
The offer does not have any prescribed form, which means that it can be either
oral or written. Once the offer is accepted or a counteroffer is presented and
accepted, conditions of the contract are negotiated. The purchase contract has
to have a written form and has to be signed by the seller before a notary, who
verifies the identity of the seller. The new legislation created an option when
the contract is done entirely by an attorney at law, who prepares the contract,
verifies the identity of the parties and their representatives, assesses whether
the contract is in accordance with law and within good manners. The attorney
at law is also personally responsible for any damage that could occur from the
authorization of the contract (for example the identity was not verified or the
contract did not become valid) and prior to verifying the contract has to prove
to the parties that he is insured for the damages. After the contract is validly
signed, the first stage of the transfer is completed.
Cadastral registry was created in Slovakia to register ownership of real estate.
The reason is to ensure that the status of the real estate in the registry is in ac-
cordance with the actual status. The second stage of the purchase of the real
estate starts with filing the proposal to the Cadastral registry. The Cadastral
registry considers the purchase contract and the proposal, and decides whether
to allow or reject the contribution. When the Cadastral registry allows the con-
tribution and marks it on the purchase contract, the formal ownership vests in
the purchaser.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Our legal system permits ownership of a sole unit (condominium) and under
this system creates joint ownership of common areas and built up areas in the
apartment building.
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Legalink – Investments in Commercial Real Property
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Any legal person can become an owner of real estate (excluding specific
types of property that can be only in ownership of the state) and our legal
system permits joint ownership. Slovak legal system recognizes two types of
joint ownership, co-ownership and joint ownership of spouses (only between
husband and wife).
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
All real estate is registered in the Cadastral registry. The ownership of real es-
tate is acquired by contribution to the Cadastral registry. Good faith purchaser
is not protected on the basis of the contribution in Cadastral registry. Property
can only be transfered by a legal owner.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Transfer of the real estate is not subject to any transfer tax. The purchase of
real estate is subject to taxation (19 % VAT) only when it is purchased from the
developer (first purchase of the given real estate).
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Slovakia
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Profit from the purchase of a real estate is subject to taxation (19 % income
tax) except when a legal person owns a real estate for at least 5 years or resides
in the real estate (house or flat) for at least two years.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
The change of ownership does not terminate the existing lease contract. The
purchaser becomes a party of the lease contract ex lege. Lessee is allowed to
terminate the lease contract consequently.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
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Legalink – Investments in Commercial Real Property
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
The owners of real estate are obliged to pay local real estate tax yearly. The
rates reflect the location and the size of the real estate.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
The costs differ according to location of the property and the property itself,
but for commercial property around Bratislava the property management rates
are about 8 – 10 % of the monthly gross rent.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
Due to the financial crisis the prices in real estate market have fallen. For this
purpose it may be good time to invest in real estate.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
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Slovakia
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
There are no restrictions concerning the purchase of real estate. The only re-
strictions are for persons outside the European Union purchasing agricultural
soil outside of the built up area of towns.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
The only restrictions for the purchase of land are for agricultural soil as men-
tioned above. Otherwise there are no further restrictions related to foreign in-
vestors starting a business. An establishment of a company may take anywhere
from 15 days and longer depending on the subject of the business.
We are permanently supporting foreign investors with all of the above men-
tioned. You can contact us at:
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Legalink – Investments in Commercial Real Property
Thailand
294
Thailand
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In Thailand, the buyer and seller first negotiate and agree on the commercial
terms of sale, either on their own or through the use of real estate agents or bro-
kers acting as their representatives. A contract is usually drafted by the seller’s
lawyer. Before reviewing the legal terms, buyers conduct due diligence on the
land to uncover any legal issues, most often with the assistance of local law-
yers. If the due diligence results are satisfactory, the parties continue to negotiate
the legal terms. The contract includes terms such as the sales price, the deposit
amount, the condition of the property, any warranties, and the closing date. The
buyer usually pays the deposit amount on the date that the contract is signed.
The parties usually effectuate the closing together at the local Land Depart-
ment. At the Land Department, the seller signs the deed transfer to the buyer
in front of a Land Department officer. The officer will help arrange for the
transfer registration at the same time. Very often a buyer will pay the remain-
ing balance to the seller with a cashier check. The use of an escrow agent is not
customary unless the transaction amount is extremely high. Once the transfer
has been registered on the same day, the buyer leaves the Land Department
with the updated original title deed showing his name as the current owner.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. When the construction on the land has been registered as a condominium
building, a separate title deed is issued for each condominium unit. These con-
dominium units are separately and individually owned.
3. Does the legal system of your country permit joint ownership of real proper-
ty? Which kind of entities can be owner of real property in your country?
Yes. The legal system of Thailand allows joint ownership of real estate
by two or more natural persons or juristic persons such as corporations.
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Legalink – Investments in Commercial Real Property
All the co-owners own equal fractional interests in the real property
asset.
Yes. The ownership of a building is implied in the ownership of the land. It is,
however, possible to separate the ownership of the land from that of the building
erected on it through specific registration scheme at the Land Department.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal register?
Yes. The land and the building (if the ownership of the building is separate
from that of the land) are registered in a formal register. A good faith purchaser
for value is protected under the law.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
There are transfer fee, specific business tax, and withholding income tax.
Transfer fee corresponds to 2% of the official assessed value of the land. Sell-
er’s specific business tax equals to 3.3% of the declared purchase price of the
land. Seller’s withholding income tax is also collected at the Land Department
and corresponds to 1% of either the official assessed value of the land or the
declared purchase price of the land, whichever is higher. The official assessed
value of the land is usually significantly lower than the actual declared pur-
chase price – sometimes as much as four times lower.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
There is no problem to buy and sell property on a short term basis. Many in-
vestors practice this short term sale to benefit from a short term profit. It is also
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Thailand
not uncommon for some investors, after having signed a land or condominium
sale contract but before the closing date, to find a subsequent buyer and request
the seller to transfer the land or condominium directly to the subsequent buyer.
This quick sale helps avoid having to pay the taxes involved in the transfer
twice.
There is also, however, a tax reason to hold the property for a longer period.
The longer the holding period, the more the “Specific Business Tax” may be
reduced through the expense deduction from the taxable base. For each year
that the owner holds the property, the expense deduction percentage increases
by a fixed number.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Whether the seller may transfer his money out of Thailand depends on where
the money originates from. If the money originates locally through local in-
vestment, then the transfer will be restricted unless there is a legal reason sup-
ported by appropriate documentation. If the money originates overseas and was
transferred into the country for investment purposes, the money may be trans-
ferred out of Thailand without so much difficulty after the investment stops.
A foreign buyer usually declares the money being transferred into Thailand as
capital investment or loan so that the money may be transferred out after the
land is sold.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
When a landlord transfers its interest in leased property to a third party, the
lease remains in force and effect, and the new landlord and the tenant gener-
ally have the same rights and obligations with respect to each other as did the
prior landlord and tenant. The new landlord cannot terminate the lease while
the lease is still in effect unless the lease contract allows such termination or
the lease agreement with a lease period longer than 3 years has not been reg-
istered.
10. Are you allowed to change the use of a building from residential use to office
space or do you need official approval for doing so or is it not allowed at all?
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Legalink – Investments in Commercial Real Property
Yes. Change of the use of a building is allowed as long as the zoning at the
time of change permits the new use. Official approval is required.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– notarial costs: There are no notarial costs as the service of a notary public is
not required in a land transaction.
– land register: None.
– real property transfer tax: The Specific Business Tax is 3.3% of the declared
purchase price. If the declared purchase price is the actual purchase price of
EUR 5 million, then the Specific Business Tax will be EUR 165,000.
The transfer fee (2%) is calculated based on the official assessed value of the
land, which is usually significantly lower than the purchase price.
The withholding income tax (1%) is calculated based on either the official
assessed value of the land or the declared purchase price, whichever is higher.
Assuming the declared purchase price is higher, 1% withholding income tax
corresponds to EUR 50,000. The official assessed values are kept at the local
Land Department office.
– advising lawyer (due diligence ): Real estate lawyers may charge approxi-
mately EUR 4,000 or higher, depending on the complexity of the transactions
involved, to perform the due diligence, draft the land sale and purchase con-
tract, and facilitate the transfer registration.
– estate agent: If real estate agents are involved, seller’s agents charge approxi-
mately 3-5% of the sales price while buyer’s agents may charge EUR 20,000
– 50,000 of flat fee.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
298
Thailand
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
The costs for a professional caretaker for a real property vary greatly depend-
ing on what services are needed. Assuming the professional caretaker’s duties
include paying property tax and utility fees on the owner’s behalf, renting out
the property, and maintaining the property, the annual service fee might be
EUR 1,500 approximately.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
Yes. Despite the world financial crisis and the political situation in Thailand,
the property prices are not dropping. It is not common for property prices in
Thailand to fluctuate widely. Instead, as the world economy slows down, the
property prices in Thailand still increase but at a slower rate than they would
under normal conditions. Compared to the uncertain property market in some
other countries, real estate is an attractive investment in Thailand. In fact, most
local investors almost always include some form of real estate in their portfo-
lio, whether residential, commercial, or industrial. In addition, even if there is
restriction against foreign ownership of land, open real property funds may be
100% foreign owned.
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15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
300
Thailand
Yes. Our office can assist clients in finding interesting real estate. We can
also assist clients with all aspects of real estate transactions and construction
projects. Please contact us at:
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Legalink – Investments in Commercial Real Property
USA – California
302
USA – California
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In the United States, real estate transactions are governed by both state and
local laws which vary from jurisdiction to jurisdiction. What follows is a gen-
eral description of real property transactions in the United States based loosely
upon the laws of California. While it accurately describes the parameters of
a real estate transaction almost anywhere in the United States, local laws and
practices will impact the specifics of any given transaction.
The buyer and seller, often through the use of real estate agents or brokers
acting as their representatives, first negotiate and agree on the terms of the sale.
A contract is drafted, often by one of the real estate agents, for the buyer and
seller to sign. The contract includes terms such as the sales price, financing
terms, the condition of the property, and any warranties. The contract often
states a date for the “closing” to occur, which is the actual transfer of owner-
ship. To effectuate the closing, the buyer and seller usually enter into a 3-way
contract with an “escrow” company, which facilitates the exchange of money
and the property deed (the official document that indicates ownership). At the
closing, the seller signs the deed and has it notarized by a notary public, then
transfers the deed to the buyer. The buyer must then record the deed by filing
it with the local County Registrar-Recorder, or similar official depending upon
the state in which the property is located. The date of the closing is normally
also the date when possession of the property is transferred, although the con-
tract can specify a different date when possession transfers. The transfer of
possession of a house, condominium, or building is usually accomplished by
handing over the keys. The contract can also specify which party pays for
what closing costs. After the closing, the escrow period ends and the transfer
of ownership completed. The state of the title to the property at closing is typi-
cally insured by “title insurance” issued by a company for which the escrow
company acts as agent.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
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Legalink – Investments in Commercial Real Property
Yes. The legal system of the United States permits ownership of the whole
land or ownership of only one or more portions of the land. A “condominium”
is the primary form of ownership in which specified parts of a piece of real
estate, often called “units,” are separately and individually owned.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. The legal system of California permits joint ownership of real property
by two or more persons, corporations, partnerships or trustees. There are vari-
ous forms of joint ownership, some of which allow an owner’s interest to pass
to his or her heirs upon death (“right of survivorship”). The main forms of
co-ownership are: (1) Community or Marital Property (spouse’s co-ownership
over marital property which typically passes to surviving spouse upon death);
(2) Joint Tenancy (co-owners of equal interest in entire property with right of
survivorship); or (3) Tenancy in Common (co-owners have right of survivor-
ship and can own unequal fractional interests).
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
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USA – California
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Property taxes and transfer taxes vary greatly depending upon the locality.
In California, property taxes are levied and paid annually according to the
value of the property as of the date it was acquired or the date of completion of
any new construction. Currently, the maximum annual tax on real property is
limited to one percent of the market value (“base”) of the property at the time
the property was sold, plus a maximum of two percent for annual inflation.
When the property is sold, the tax can increase because it will then be based
on the new market value. Also, upon sale of real property in California, local
governments can impose a transfer tax at the rate of $0.55 for each $500.00 of
the selling price.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
For domestic investors, gains realized on the sale of real property are taxed at
a person’s ordinary income tax rate if the property is held for less than a year.
If the property is held for more than a year, then gains are taxed at a preferen-
tial rate which is currently 15%. Foreign investors are generally not subject to
the foregoing rules, but are instead taxed under the provisions of the Foreign
Investment in Real Property Tax Act (FIRPTA), which usually requires a buyer
to withhold 10% of the purchase price of real property owned by a foreign
investor to cover that investor’s tax liability.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9 .If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
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Legalink – Investments in Commercial Real Property
When a landlord transfers its interest in leased property to a third party, the
lease remains in force and effect, and the new landlord and the tenant generally
have the same rights and obligations with respect to each other as did the prior
landlord and tenant. The new landlord cannot terminate the lease while the
lease is still in effect unless the lease contract allows such termination.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Most cities and counties divide their jurisdictions into land use districts, or
“zones.” Within each zone a specific set of rules control the use of land. There
are often zones for single-family residences, multi-family dwellings, commer-
cial uses, industrial activities, open space or agriculture and, sometimes, mixed
uses. If a property owner desires to use property in a manner not permitted un-
der the applicable zoning rules, the owner may seek a variance or conditional
use permit, or seek to amend the zoning rules.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– Others
Notary public charges in California are usually less than $20.00 U.S. Dollars,
or EUR 15,80. As of May 2010, the fee to record real property records can
vary from county to county but is approximately $20.00 U.S. Dollars, or EUR
15,80. In California, local governments can impose a transfer tax at the rate of
$0.55 for each $500.00 of the selling price, which means the transfer tax for a
purchase price of EUR 5 million can be up to approximately $7,000.00 or EUR
5530. Real estate attorneys typically charge by the hour, so the fees are a func-
tion of the complexity of the transaction, but will typically average $10,000 to
$15,000 in a transaction of this size, EUR 11.860, for a real estate transfer. Real
estate agents charge approximately 5 percent of the sales price, which is ap-
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USA – California
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
There is a property tax on real estate in the United States, which is usually
levied by local governments at the county level. The forms and rates of the
property taxes vary between jurisdictions. There is a property tax in California,
which has to be paid yearly. Currently, the maximum annual tax on real prop-
erty is limited to one percent of the market value (“base”) of the property at the
time the property was sold, plus a maximum of two percent for annual infla-
tion. There may also be special assessment taxes, which are levied for the cost
of specific local improvements such as streets, sewers, irrigation, and drainage.
Special assessments may be due periodically to improvement districts or be
levied only once by the city or county for a particular work or improvement.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
When you hire a property management company, the service can range from
showing your property to an all-in-one package. An ongoing monthly fee
charged to the owner to the property manager can vary from 3% to over 15%,
usually 8% to 10%, of the monthly gross rent.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
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Due to the effects of the recent financial crisis, real estate prices have fallen
in many parts of the United States, sometimes dramatically so. Recently, prices
have stabilized and some early signs of a recovery can be seen. It is, therefore,
probably a good time to buy real estate in the United States through any of the
investment mechanisms described above.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
If the property is not located in a commercial district appropriate for the type
of business being operated, the foreign investor may need to seek a variance or
conditional use permit, or seek to amend the zoning rules, to allow the business
to operate in that district. The requirements and amount of time necessary to
obtain a variance can vary depending on the locality, type of variance sought
and other factors, but takes approximately six months. The investor will also
need to register the business with the Secretary of State and obtain a seller’s
permit and business license from the city in which the business will operate,
which can take anywhere from a few days to several months depending on the
locality and other factors. Just as importantly, if a foreign investor is seeking
citizenship in the United States, the EB-5 visa program offers a path to citi-
zenship for non-citizens able to invest $1,000,000 in a business in the United
States.
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USA – California
Yes. Our office is capable of assisting clients in all aspects of real estate and
construction projects. Please contact Peter Lindborg or Irina Drill at:
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2550 M Street NW
Washington DC 20037
United States of America
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USA – District of Columbia
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In the United States, real estate transactions are governed by both state and
local laws which vary from jurisdiction to jurisdiction. Following is a general
description of commercial real property transactions in the United States based
loosely upon laws of the District of Columbia. While the following accurately
describes the parameters of a real estate transaction in the United States, gen-
erally, local laws and practices will impact the specifics of any given transac-
tion.
The buyer and seller, often through the use of real estate agents or brokers
acting as their representatives, first negotiate and agree on the terms of the sale
which is typically evidenced by a letter of intent. In the commercial context, a
contract (known as the purchase and sale agreement) is drafted and negotiated
by legal counsel to the parties for the parties to sign. The contract includes
terms such as the sales price, financing terms, the condition of the property,
conditions to closing, covenants, representations and warranties. The contract
will also set forth the level of due diligence to be performed by the buyer.
After a purchase and sale agreement is executed, the next steps are deter-
mined by the terms of the purchase and sale agreement. The typical process is
that the buyer will have a period of time during which the buyer can perform
due diligence on the property. Due diligence typically consists of reviewing the
title and survey for the property, reviewing environmental reports, determining
the zoning status of the property, and reviewing existing leases and contracts
affecting the property. Due diligence may include additional investigations and
rarely is there a limitation on buyer’s due diligence. The scope of the due dili-
gence is negotiated in the purchase and sale agreement. The purchase and sale
agreement will also specify a closing date as well as the location of the closing.
Closing typically takes place at the title company’s offices and the title com-
pany acts as escrow agent for all money and documents. The seller and buyer
may show up in person to execute documents, but this is not typical. Money is
wired directly to the title company and the documents are couriered to the title
company. Once the title company confirms receipt of all of the documents and
the money, as well as satisfaction of all of the closing conditions set forth in the
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purchase and sale agreement and instruction letters from buyer’s and seller’s
counsel, respectively, the real estate transaction closes and the deed is released
from escrow for recordation. The deed is not recorded until after the real estate
transaction closes.
After the closing, the escrow period ends and the transfer of ownership is
complete. The state of the title to the property at closing is typically insured by
title insurance, which is issued by a title insurance company. During the due
diligence period, legal counsel to buyer will negotiate the form of title insur-
ance policy to be issued at the closing to the buyer.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
The District of Columbia has two legal regimes in which the land is coopera-
tively owned and the units are individually owned. The first regime is a condo-
minium. In a condominium regime, a portion of the property is designated as
common elements (which are collectively owned by all of the condominium
unit owners through a condominium association) and the remainder of the
property is designated as condominium units (which are individually owned).
The second regime is a cooperative. In a cooperative all of the property is
owned by a corporation and the shareholders in the cooperation have the right
to use a specific unit within the property.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
The District of Columbia allows the joint ownership of real property through
the use of tenancies in common, joint tenancies and tenancies of the entirety.
In addition to individuals, the following entities can also own real property in
the District of Columbia: Limited Liability Companies, Limited Partnerships,
General Partnerships, and Corporations.
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USA – District of Columbia
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
The general rule in the District of Columbia is that “when 2 or more deeds of
the same property are made to bona fide purchasers for value without notice,
the deed or deeds which are first recorded according to law shall be preferred.”
However, the question of whether or not the purchaser who records first is
protected depends on the specific facts of the matter, specifically, whether the
purchaser had notice of the other claim or deed even if such claim or deed is
unrecorded.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Below are the typical taxes paid in connection with the purchase of commer-
cial real estate in the District of Columbia:
Deed Recordation Tax: 1.45% of the greater of (i) the consideration,
and (ii) fair market value of the property.
Deed Transfer Tax: 1.45% of the greater of (i) the consideration,
and (ii) fair market value of the property.
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7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
There is no required hold period for real property in the District of Columbia.
An owner can sell property at any time. In times when real estate values are
rising, it is not uncommon for a purchaser to “flip” the property and resell the
property the same day the purchaser acquires the property.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
In DC, a buyer of real property does not have the right to terminate existing
leases unless the transfer is through a foreclosure by a lender that has a prior-
ity position or where the lease has been subordinated. If the existing leases are
commercial leases, then the owner of the property must wait for the existing
lease to expire or the owner may terminate the lease after a tenant default.
However, in the District of Columbia if the existing lease of the property is
residential, then the owner must wait until the tenant moves out of the property.
Residential leases in the District of Columbia are essentially life estates for the
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USA – District of Columbia
life of the tenant and the tenant can only be removed through a judicial process
for nonpayment of rent. Also, in District of Columbia if the existing leases are
residential, the residential tenants have a right of first refusal to purchase the
property by matching the purchase price of a third party purchase contract.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Most cities and counties divide their jurisdictions into land use districts, or
“zones.” Within each zone a specific set of rules control the use of land. There
are often zones for single-family residences, multi-family dwellings, commer-
cial uses, industrial activities, open space or agriculture and, sometimes, mixed
uses. If a property owner desires to use property in a manner not permitted un-
der the applicable zoning ordinances, the owner may seek a variance or condi-
tional use permit, or seek to amend the zoning rules. Property in the District of
Columbia is zoned for specific uses and the owner can not change a permitted
use without governmental approval. Buyers must also be wary of covenants,
conditions and restrictions (CC&R’s) which commonly restrict property. Such
CC&R’s are private restrictions placed on the property which are enforced by
private rights of action.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– Others
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12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
There is a property tax on real estate in the United States, which is usually
levied at the local level. Real property taxes are paid on an annual basis. The
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USA – District of Columbia
real property tax is based on the assessed value of the property (as determined
by the District of Columbia). The real property tax rate depends on the use of
the property and generally varies on an annual basis. Examples of the 2010 real
property tax rates are:
Vacant Commercial Property: $10.00 per every $100 of assessed value
Apartment Buildings: $0.85 per every $100 of assessed value
Commercial Property: $1.65 per every $100 of assessed value of the
first $3,000,000 of assessed value, and $1.85
per every $100 of assessed value thereafter
In addition to the real property tax, a property owner may have to pay ad-
ditional annual fees, such as business improvement district fees or CC&R
assessments. The existence of these fees depends on a property location and
the requirement to pay the fees is usually recorded in the real estate records.
Proper due diligence before purchasing any parcel of real property is neces-
sary to determine the annual taxes and fees applicable to a specific parcel of
real property.
There may also be special assessment taxes, which are levied for the cost of
specific local improvements such as streets, sewers, irrigation, and drainage.
Special assessments may be due periodically to improvement districts or be
levied only once by the District of Columbia for a particular work or improve-
ment.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
Property management fees in the District of Columbia are negotiable but they
are typically 4% of the income from the property plus the property manager’s
out-of-pocket expenses. If the property manager does work in addition to man-
aging the property, such as overseeing and coordinating tenant construction
work, there is usually a separate construction management fee of 3% for such
activities.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
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The District of Columbia is the Capital of the United States and the amount
of real estate in the District of Columbia is limited thereby making the District
of Columbia attractive to foreign investors. The decision to invest in property
is best determined by the foreign investor with the advice of a reputable com-
mercial real estate broker and real estate investment advisor.
Foreign investors are free to invest directly in real estate or indirectly through
open real property funds, closed real property funds, and other clear and secure
financial products. The most appropriate vehicle for investment varies from
real estate project to project and a foreign investor should consult a local attor-
ney, a U.S. tax attorney specializing in foreign investment in real estate and an
accountant to determine the best investment structure for a given project.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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USA – District of Columbia
If the property is not located in a commercial district appropriate for the type
of business being operated, the foreign investor may need to seek a variance or
conditional use permit, or seek to amend the zoning rules, to allow the business
to operate in that district. The requirements and amount of time necessary to
obtain a variance can vary depending on the locality, type of variance sought
and other factors, but takes approximately six months. The approvals and li-
censes needed to run a business vary depending on the type of business the
investor intends to conduct in the District of Columbia. Generally, the investor
will need to register the business and obtain the appropriate business licenses
from the Department of Consumer and Regulatory Affairs (“DCRA”). The
time frame for obtaining the necessary licenses varies depending on the nature
of the business. It is common practice for investors in the District of Columbia
to use a permit expeditor to speed the process of obtaining business licenses
from the DCRA. Depending on the location and nature of the business, the
investor may also need the approval of an Advisory Neighborhood Commis-
sion.
If a foreign investor is seeking citizenship in the United States, the EB-5 visa
program offers a path to citizenship for non-citizens able to invest $1,000,000
in a business in the United States.
Patton Boggs real estate group devises innovative and sophisticated approach-
es to achieve practical and cost-effective results for clients. We provide counsel
on all aspects of real estate business, striving to always put our clients in the
best position to conduct business and take advantage of new opportunities
Patton Boggs broad national real estate practice gives us valuable experience
with virtually every kind of commercial real estate activity – whether on a lo-
cal, regional or national basis – including all phases of commercial real estate
development, project and infrastructure development, investment, finance, re-
structuring and workouts
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Patton Boggs represents investors (foreign and domestic), banks and other
institutional lenders, owners and developers in the complete range of real estate
matters, including:
– Real property acquisition, disposition and operation;
– Development and construction; Mediation, arbitration and litigation;
– Zoning and land use planning;
– Financing;
– Restructuring, workouts, foreclosures, bankruptcy and creditors’ rights
– Transactional tax planning
– Leasing
We understand the intense time pressures that are often involved in real estate
transactions and that many deals will not close unless they are promptly negoti-
ated and documented.
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USA – District of Columbia
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USA – Florida
322
USA – Florida
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
Most real estate purchase agreements in Florida allow the purchaser to con-
duct due diligence with respect to the condition of the property and title issues
for a period of thirty to forty-five days following the execution of the purchase
agreement. During this period, a purchaser would typically complete reviews
of (i) the structural integrity and mechanical systems of the improvements,
(ii) the municipal land use records, including the existence of necessary oc-
cupancy and other permits, (iii) the environmental condition of the property,
(iv) record title to the property, which is typically performed by a title insurance
company or agency, and (v) a survey of the property. Following completion of
the due diligence, assuming that the purchaser elects to proceed, closing will
occur typically within thirty days, during which time conveyance documents
are prepared and executed, any title issues are resolved and final settlement
adjustments are calculated.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Our legal system does permit the separate ownership of portions of the im-
provements through a condominium organization and other similar arrange-
ments. Occasionally separate ownership is effected through a cooperative
arrangement in which shares of stock are issued and units are leased to the
respective stockholders.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Our legal system permits joint ownership of real property. Joint ownership
can be established through an entity or through direct ownership of portions
of the fee interest. Direct ownership is typically accomplished through a ten-
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Legalink – Investments in Commercial Real Property
It is possible to have separate ownership for the land and the improvements.
Separate ownership is often established pursuant to a ground lease, where the
landowner leases the land to a ground lessee. The ground lessee would have
the right to build improvements on the land and would have ownership of those
improvements. The ground lessee would typically have the right to transfer its
leasehold interest in the land as well as its ownership of the improvements.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
All deeds and other documents affecting title to real property must be re-
corded in the local land records office (which is the County Clerk of Court in
Florida). Once recorded, a good faith purchaser is protected. If not so recorded,
a document would have no effect on the rights of third parties, unless they had
actual knowledge of the existence of the document.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Realty transfer taxes are applicable to transfers of real property. In Florida, the
transfer tax in all counties except Miami-Dade County is $7 per $1,000 USD of
consideration. In Miami-Dade County, the rate is $6 per $1,000 USD, except
for commercial premises, in which case an additional $4.50 per $1,000 USD is
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USA – Florida
assessed. The seller typically is responsible for such transfer costs, but it is not
unusual for this to be a negotiated business term in larger transactions.
There may be ways to avoid the effect of the realty transfer tax through the
use of creative techniques, though some of these have been eliminated in recent
years as states and municipalities seek additional sources of revenue.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
State and federal income taxes may apply to any gains resulting from sale of
real property. To the extent that property is held less than one year, any gain
would be taxed as ordinary income. If the property is held for more than one
year, gains may be subject to treatment as capital gains, at a reduced rate, cur-
rently 15%. In Florida, there is no state income tax.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes, although a portion of the funds may have to be retained to cover income
tax which may be due from the seller.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Whether or not the use of a building can be changed from residential use to
office use depends upon the applicable land use ordinances, which are typically
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Legalink – Investments in Commercial Real Property
called zoning ordinances. If the property is currently zoned for residential uses,
a change in use would require a variance or an amendment to the applicable
zoning ordinance. Variances are granted only in unusual circumstances, for ex-
ample where the property has little or no value as currently zoned. An amend-
ment to the applicable ordinance could be difficult to obtain where the sur-
rounding neighborhood is zoned residential. In addition, even for commercial
projects, depending on the size of the project and its location, it is not unusual
to have neighborhood oppostion to zoning or use changes, which can result in
litigation. Also please note that recorded restrictive covenants may also limit
the uses to which a property may be put without the consent of neighboring
land owners.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– Others
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USA – Florida
sion would be 5% to 7%. The larger the project, the more likely it is that the
commission can be reduced by negotiation.
f. Other costs could include:
a. Environmental consultant
b. Inspecting engineer
c. Title Insurance (Generally a percentage of the purchase price, varying in
accordance with the size of the transaction). In Florida, the rates are set
by the State and non-negotiable. The title insurance premium for a USD
$6.35 million sale would be approximately USD $18,000 (not including
any lender required or other endorsements, which could increase the cost
substantially).
d. Surveyor ($2000 and up, depending on the complexity of the property).
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Annual real estate taxes vary from municipality to municipality. Taxes are as-
sessed by the applicable county, municipal government and school district and
may be adjusted yearly. They would typically range from 2% to 4% of value
on an annual basis.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
A professional property manager typically charges for its services based upon
the rental income from the property. Typical charges for these services range
from 2% to 4% of rental income. In addition, brokerage commissions would
be payable to a real estate broker engaged with respect to the leasing of the
property. These commissions would range from 5% to 6% of the rents payable
over the life of the applicable lease. Both property management and brokerage
fee arrangements can be negotiated.
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14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
The answer to this question depends on the particular circumstances and goals
of the potential investor. There are many commercial properties in the United
States which are available at prices substantially below where they were priced
several years ago.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
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USA – Florida
Businesses must register with the State of Florida to do business in the state.
They must also register with the state taxing authorities for payment of income
and, if applicable corporate stock taxes, as well as workman’s compensation
insurance and unemployment compensation insurance. Local occupancy per-
mits and business licenses are usually required as well.
Such registrations can generally be accomplished very quickly.
For particular types of businesses, for example the practice of law or medicine, or
the sale of insurance or securities, state and/or federal licenses are also required.
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2 Wall Street
New York NY 10005
United States of America
330
USA – New York
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In the United States, contracts for the transfer or real property are governed by
the law of the state and the locality where the property is located. The following
is a general description of real property transactions in the United States based
loosely on practices in New York State. In New York, the purchaser and seller
are generally free to structure the purchase agreement to meet their particular
needs, with the basic terms of the agreement negotiated by the real estate bro-
kers retained by the purchaser and seller. Lawyers representing the purchaser
and seller complete the negotiations, and the seller’s attorney usually drafts the
purchase agreement. The agreement can be drafted using accepted legal forms,
or a new agreement can be drafted to address special business terms. Purchase
agreements can be lengthy and complex, particularly where the commercial
property includes multiple existing tenants, where the property is believed to
have environmental contamination, or where a change in the use of the prop-
erty is contemplated. The agreement almost always requires the purchaser to
pay money to an escrow agent. In New York, the escrow amount is typically
10% of the purchase price (or more for certain sponsor sales of condominium
units), and the seller’s attorney usually serves as the escrow agent. This money
is usually credited to the purchaser on the closing date or forfeited to the seller
if the transaction is not completed due to the purchaser’s default.
Before the closing date, the attorney for the seller drafts a “deed”, which is
the legal instrument that transfers title to the property (assuming the transaction
does not relate to a cooperative apartment). A bank loan that finances the pur-
chase will be secured by the real property through a legal instrument known as
a “mortgage”. To protect its financial interest in the property, the bank typically
requires the purchaser to obtain two separate insurance policies: one to insure
against damage to the property and a second to ensure against any adverse
claims to title. On the closing date, the deed is delivered to the purchaser, the
purchase price (including any loan proceeds) is paid to the seller, and the deed
and mortgage are delivered to the County Clerk (Office of the Register, in New
York City). Along with attorneys for the purchaser and the seller, the bank is
represented by its own attorney at the closing.
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2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. The United States, and New York in particular, are receptive to different
sorts of ownership arrangements. Condominiums are common in residential
buildings and also exist in commercial buildings. Another prevalent form of
residential property ownership in New York is known as the cooperative (or
“co-op”) in which all of the units in a property are owned by a cooperative
corporation, with an occupant owning “shares” and a proprietary lease from
the corporation which entitles the shareholder to use a particular unit in the
building. Other forms of ownership that combine features of condominiums
and cooperatives (the “cond-op”) have become increasingly popular in New
York and other major metropolitan areas.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be an owner of real property in your
country?
Yes. New York State permits ownership of real property by one or more in-
dividuals, corporations, partnerships or trustees. There are various forms of
joint ownership, some of which allow an owner’s interest to pass to his or her
heirs upon death (“right of survivorship”). The main forms of co-ownership
are: (1) Tenancy by Entirety (spouse’s co-ownership of real property which
passes to surviving spouse upon death); (2) Joint Tenancy (co-owners of un-
divided interest in entire property with right of survivorship); or (3) Tenancy
in Common (co-owners can own unequal fractional interests but have no right
of survivorship).
In the United States, land and buildings can be owned by different entities.
In addition to other forms of ownership (condominiums, cooperatives, etc.),
an owner may lease its land to a developer (a “ground lease”) to construct a
building. Ownership of land can be divided into surface rights and subsurface
(mineral) rights, and, in a number of local jurisdictions, including New York
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USA – New York
City, transferable development rights (“air rights”) may be conveyed from one
piece of land to another.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Yes. In New York State and most states in the United States, the deed, the
mortgage and other legal instruments that affect the ownership of real estate
are almost always “recorded” in the county office where the property is located
to protect the ownership interest against a subsequent purchaser.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Taxes imposed on the transfer of real property are in addition to any income
taxes that may also be payable. Transfer tax implications can differ dramati-
cally depending on the jurisdiction where the property is located, but they typi-
cally do not vary based on the holding period. In New York City, a commercial
mortgage of $500,000 or more is subject to a mortgage recording tax of $2.80
for each $100 (or major fraction) of the loan principal. New York State and
New York City also separately levy real property transfer taxes on non-exempt
transactions. For commercial properties, the State rate is $4 for every $1,000 of
the purchase price and the City rate is 2.625% of the purchase price.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
The time period a property is held may affect the tax rates that apply under
both federal and state income tax laws. An individual investor who holds real
property for less than a year is taxed at the federal and state tax rates for ordi-
nary income. An individual investor who holds real property for more than a
year is taxed at federal and state rates for long-term “capital gains”, which are
normally lower than the rates for ordinary income. Corporations are taxed at
separate rates which do not vary based on the time a property is held. Federal
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tax laws permit certain like-kind exchanges that can mitigate the income tax
consequences of the transfer of real property.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
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USA – New York
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– Others
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
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Legalink – Investments in Commercial Real Property
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
The recent financial crisis has had a negative impact on real estate prices
nationwide, with property values in some areas declining greatly and other
areas experiencing very little decrease in value. Real estate values in the New
York metropolitan area have generally experienced moderate declines in the
past three years. However, New York remains a popular real estate market for
international investors.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
336
USA – New York
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
Assuming the business use is permitted by the local zoning law, where a pro-
posed use is commercial or industrial, additional approvals may be needed from
local, state and federal officials to address environmental, health and safety
concerns. The time it takes to obtain these approvals varies. Simple approvals,
such as building permits, can be obtained very quickly. Approvals to change
the use of property or to permit an industrial facility to emit pollutants can take
six months or longer and frequently require the assistance of attorneys.
Established in 1854, Carter Ledyard & Milburn LLP has been assisting in-
ternational clients with all aspects of commercial and residential real estate
transactions for generations. We assist clients in buying and selling properties
throughout the United States, with a focus on office, retail and mixed-use buil-
dings in Manhattan and elsewhere in the City of New York. Representative
transactions include purchases and sales of actively-managed office buildings,
net leased office buildings, joint venture transactions and air rights transfers.
We represent both taxable and tax-exempt entities and advise both with respect
to the tax treatment of sales, acquisitions and related financings. We have also
represented tenants in negotiating with New York State, New York City and
the State of New Jersey for tax abatements and other incentives in connection
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Legalink – Investments in Commercial Real Property
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USA – New York
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USA – Ohio
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USA – Ohio
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In the United States, real estate transactions are governed by both state and
local laws that vary from jurisdiction to jurisdiction, with some federal laws
also impacting certain elements of real estate transactions. What follows is a
general description of real property transactions in the state of Ohio, but many
of the same principles will apply to real estate transactions elsewhere in the
United States.
The buyer and seller often connect through their real estate agents or brokers
acting as their representatives, who typically assist the buyer and seller in nego-
tiating the basic economic terms of the potential purchase and sale agreement.
In commercial transactions, attorneys are frequently involved in assisting the
buyer and seller with negotiating the specific terms of the contract that will
serve to memorialize the agreement. Residential transactions frequently are
completed without the involvement of attorneys, although a buyer’s or seller’s
agent or broker may recommend an attorney under some circumstances. The
purchase and sale contract that ultimately is signed by the buyer and seller
includes a description of the property to be sold and essential terms of the deal,
such as the purchase price, any conditions to the buyer’s obligation to complete
the purchase (such as inspections of the property, financing contingencies, and
review and confirmation of marektable title to the property), any warranties to
be given by the seller, among other potential terms and conditions.
The contract often states a date for the “closing” to occur, which is when the
actual transfer of ownership occurs by a deed that may contain warranties of
title or no warranties at all. To effectuate the closing, the buyer and seller usu-
ally work through a title agency, which facilitates the exchange of the buyer’s
purchase money and the seller’s deed for the property. At the closing, the seller
signs the deed and has it notarized by a notary public, then transfers the deed to
the buyer. The title agency generally also assists the buyer with recording the
deed in the public records of the county recorder’s office. Title agencies offer
policies of title insurance that the buyer (and the buyer’s lender, if any) may
obtain to protect against the risk of another party claiming to have an interest
in the property that limits the buyer’s ability to use the property or otherwise
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Legalink – Investments in Commercial Real Property
results in damages to the buyer. The title agency requires a premium for the
title insurance policy and imposes some fees for its services in connection with
the closing. The premium for the title policy does not vary from agency to
agency and is calculated relative to the purchase price if that is the amount of
coverage the buyer desires to obtain. Frequently the buyer obtains possession
of the property on the closing date, but that can be varied by the terms of the
contract.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Yes. The legal system of the state of Ohio permits ownership of the whole
land, along with the improvements on the land, but it is possible to separate (by
contract or otherwise) ownership of the land from ownership of the improve-
ments made to the land, and there can be separate ownership of specific units
of a building constructed on the land, such as through ownership of distinct
condominium units of a building.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Yes. The legal system of Ohio permits joint ownership of real property by
two or more persons, trustees of a trust, corporations, partnerships, or other
legal entities that may properly own an interest in real estate. There are various
forms of joint ownership, some of which allow an owner’s interest to pass to
his or her heirs upon death. Common forms of co-ownership are: (a) a tenancy
in common, whereby the co-owners have undivided percentage interests in the
real estate (not in the sense of owning different “pieces” of the property but by
owning various percentage interests in the entire, undivided property); and (b)
a joint tenancy with right of survivorship, whereby, upon death of a co-owner,
the surviving co-owner or co-owners inherit the interest of the deceased co-
owner instead of the heirs of the deceased co-owner inheriting that interest.
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USA – Ohio
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Property taxes and transfer taxes vary greatly in Ohio at the county or other
local level. The owner of the property is responsible for paying real estate
taxes levied and paid semi-annually according to the value of the property and
the specific tax rates in the applicable jurisdiction. When real estate is sold in
Ohio, a conveyance fee of $1.00 per $1,000 of the sale price is imposed, and
the seller usually pays that fee unless the contract between the parties indicates
otherwise, and the local county government is permitted to impose an addi-
tional conveyance fee amount up to a maximum of $3.00 per $1,000 of the sale
price (for a maximum conveyance fee of $4.00 per $1,000 of the sale price).
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
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Legalink – Investments in Commercial Real Property
Presently, gains realized on the sale of real property generally are taxed at a
person’s ordinary income tax rate if the property is held for less than a year. If
the property is held for more than a year, then gains are taxed at a preferential
rate, which is currently 15% for US taxpayers. There are some options for de-
ferring the taxes payable on gains realized from the sale of real property by, for
example, re-investing those gains in new real estate acquisitions, but specific
legal requirements, including time restrictions on the re-investment in new real
estate, must be satisfied.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
When a property owner transfers its ownership interest in real estate that is
leased to a third party, the lease generally remains in force and effect, and the
new landlord/owner and the tenant generally have the same rights and obliga-
tions with respect to each other as did the prior landlord and tenant. However,
under some circumstances where the new owner acquires ownership of the
property without adequate recorded or constructive notice of the tenant’s lease
rights, the lease may not have to be recognized by the new owner.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Most cities, villages, and counties in Ohio divide their jurisdictions into land
use districts or „zones,“ such as areas zoned for certain commercial activities,
areas zoned for residential use, and the like. Some jurisdictions in Ohio, how-
ever, have no zoning code. Where a zoning code exists, a specific set of rules
controls the use of the land within each zone and may control specific aspects
of construction on the land. If a property owner desires to use property in a
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USA – Ohio
manner not permitted under the applicable zoning rules, the owner may seek a
variance or conditional use permit or seek to amend the zoning rules.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
Notary public charges in Ohio are usually nominal, and documents notarized
in a real estate transaction are often notarized free of charge. Fees for record-
ing the deed and other transaction documents that must be recorded (such as a
mortgage on the property) generally are $28 for the first page and $8 for each
additional page. The conveyance fee will vary from county to county but can
range from $1.00 to $4.00 per $1,000 of the sale price. Real estate attorneys
typically charge by the hour, so the fees are a function of the complexity of
the transaction and the billing rate of the attorney and usually vary by region,
but fees often do not exceed 1% of the sale price. Real estate brokers or agents
commonly charge a commission of 6% of the sale price (which is generally
paid by the seller), to be divided evenly between the buyer’s agent and the
seller’s agent, but the commission amounts vary. Title insurance premiums are
established by a schedule tied to the purchase price (or other requested cover-
age level), and for a transaction of $5,000,000, the title insurance premium for
an owner’s policy would be just over $14,500. Other costs may be imposed in
connection with a real estate transaction, such as a recoupment charge for taxes
that the buyer has to pay in the event that land taxed based on its agricultural
value is acquired and its use modified to non-agricultural use (with the recoup-
ment charge based on the amount of tax savings over the prior three years
based on the land being taxed on an agricultural value).
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Legalink – Investments in Commercial Real Property
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Real estate taxes charged to property owners vary greatly in Ohio at the coun-
ty or other local level. The owner of the property is responsible for paying the
real estate taxes levied and paid semi-annually according to the value of the
property and the specific tax rates in the applicable jurisdiction. In Ohio, taxes
for the first half of a given year generally are payable early in the following cal-
endar year, and taxes for the second half of a given year generally are payable
in the early part of the second half of the following calendar year. In real estate
sale transactions, this often requires a seller of property to credit the buyer at
closing for a significant amount of taxes to later come due and payable on the
property, prorated through the date of closing. Properties also may be subject
to special assessments, which are levied for the cost of specific local improve-
ments such as streets, sewers, and drainage components.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
346
USA – Ohio
Due to the effects of the recent financial crisis, real estate prices have fallen
in many parts of the United States, including in Ohio, sometimes dramati-
cally so, although Ohio’s values had not spiked to the extent that occurred in
some other states, so values haven’t shown quite as sharp of a decline as in
some other states over the past few years. Recently, prices have stabilized and
some early signs of a recovery can be seen. It is, therefore, probably a good
time to buy real estate in the United States, including in Ohio, through any of
the investment mechanisms described above. Buyers with equity to put into
transactions are finding attractive deals in Ohio and elsewhere, given the state
of the market.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
If the property is not located in a commercial district appropriate for the type
of business being operated, the foreign investor may need to seek a variance
or conditional use permit or seek to amend the zoning rules in order to al-
low the business to operate in that district. The requirements and amount of
time necessary to obtain a variance can vary depending on the locality, type
of variance sought, and other factors, but roughly could take approximately
six months. The investor will also need to register the business with the Sec-
retary of State and obtain a seller’s permit and business license from the city
in which the business will operate, which can take anywhere from a few days
to several months depending on the locality and other factors. Other approvals
and permits may be necessary, such as a permit allowing the sale of alcohol
and permits for any construction. Just as importantly, if a foreign investor is
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Legalink – Investments in Commercial Real Property
seeking citizenship in the United States, the EB-5 visa program offers a path
to citizenship for non-citizens able to invest $1,000,000 in a business in the
United States.
Our office is capable of assisting clients in all aspects of real estate and con-
struction projects. Please contact Jerry Allen at:
348
USA – Ohio
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Legalink – Investments in Commercial Real Property
USA – Pennsylvania
www.buchananingersoll.com
gregory.pearson@bipc.com
350
USA – Pennsylvania
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
Our legal system does permit the separate ownership of portions of the im-
provements through a condominium organization and other similar arrange-
ments. Occasionally separate ownership is effected through a cooperative
arrangement in which shares of stock are issued and units are leased to the
respective stockholders.
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Our legal system permits joint ownership of real property. Joint ownership
can be established through an entity or through direct ownership of portions
of the fee interest. Direct ownership is typically accomplished through a ten-
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Legalink – Investments in Commercial Real Property
It is possible to have separate ownership for the land and the improvements.
Separate ownership is often established pursuant to a ground lease, where the
landowner leases the land to a ground lessee. The ground lessee would have
the right to build improvements on the land and would have ownership of those
improvements. The ground lessee would typically have the right to transfer its
leasehold interest in the land as well as its ownership of the improvements.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
All deeds and other documents affecting title to real property must be re-
corded in the local land records office (the Recorder of Deeds in Pennsylvania).
Once recorded, a good faith purchaser is protected. If not so recorded, a docu-
ment would have no effect on the rights of third parties, unless they had actual
knowledge of the existence of the document.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
Realty transfer taxes are applicable to transfers of real property. Realty trans-
fer taxes in Pennsylvania vary from municipality to municipality and range
from 2% to 4% of the value of the property. They are generally shared equally
by the seller and the buyer.
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USA – Pennsylvania
There may be ways to avoid the effect of the realty transfer tax through the
use of creative techniques, though some of these have been eliminated in recent
years as states and municipalities seek additional sources of revenue.
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
State and federal income taxes may apply to any gains resulting from sale of
real property. To the extent that property is held less than one year, any gain
would be taxed as ordinary income. If the property is held for more than one
year, gains may be subject to treatment as capital gains, at a reduced rate, cur-
rently 15%.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes, although a portion of the funds may have to be retained to cover income
tax which may be due from the seller.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Whether or not the use of a building can be changed from residential use to
office use depends upon the applicable land use ordinances, which are typically
called zoning ordinances. If the property is currently zoned for residential uses,
a change in use would require a variance or an amendment to the applicable
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Legalink – Investments in Commercial Real Property
zoning ordinance. Variances are granted only in unusual circumstances, for ex-
ample where the property has little or no value as currently zoned. An amend-
ment to the applicable ordinance could be difficult to obtain where the sur-
rounding neighborhood is zoned residential. In addition, even for commercial
projects, depending on the size of the project and its location, it is not unusual
to have neighborhood oppostion to zoning or use changes, which can result in
litigation. Also please note that recorded restrictive covenants may also limit
the uses to which a property may be put without the consent of neighboring
land owners.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– Others
354
USA – Pennsylvania
a. Environmental consultant
b. Inspecting engineer
c. Title Insurance (A percentage of the purchase price, varying in accordance
with the size of the transaction). The title insurance premium for a USD
$6.35 million sale would be approximately USD $16,000 (not including
any lender required or other endorsements, which could increase the cost
substantially).
d. Surveyor ($2000 and up, depending on the complexity of the property)
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
Annual real estate taxes vary from municipality to municipality. Taxes are as-
sessed by the applicable county, municipal government and school district and
may be adjusted yearly. They would typically range from 2% to 4% of value
on an annual basis.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
A professional property manager typically charges for its services based upon
the rental income from the property. Typical charges for these services range
from 2% to 4% of rental income. In addition, brokerage commissions would
be payable to a real estate broker engaged with respect to the leasing of the
property. These commissions would range from 5% to 6% of the rents payable
over the life of the applicable lease. Both property management and brokerage
fee arrangements can be negotiated.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
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Legalink – Investments in Commercial Real Property
– At the moment not because of the impacts of the worldwide financial crisis
The answer to this question depends on the particular circumstances and goals
of the potential investor. There are many commercial properties in the United
States which are available at prices substantially below where they were priced
several years ago.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
356
USA – Pennsylvania
For particular types of businesses, for example the practice of law or medi-
cine, or the sale of insurance or securities, state and/or federal licenses may be
required.
gregory.pearson@bipc.com
(412) 562-8909
charles.knox@bipc.com
(619) 685-1902
357
Legalink – Investments in Commercial Real Property
USA – Texas
2550 M Street NW
Washington DC 20037
United States of America
358
USA – Texas
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
In the United States, real estate transactions are governed by both state and
local laws which vary from jurisdiction to jurisdiction. Following is a general
description of commercial real property transactions in the United States based
upon laws of the state of Texas. While the following accurately describes the
parameters of a real estate transaction in the United States, generally, local
laws and practices will impact the specifics of any given transaction.
The buyer and seller, often through the use of real estate agents or brokers
acting as their representatives, first negotiate and agree on the terms of the sale,
which is typically evidenced by a letter of intent. In the commercial context, a
contract (known as the purchase and sale agreement) is drafted and negotiated
by legal counsel to the parties for the parties to sign. The contract includes
terms such as the sales price, financing terms, the condition of the property,
conditions to closing, covenants, representations and warranties. The contract
will also set forth the level of due diligence to be performed by the buyer.
After a purchase and sale agreement is executed, the next steps are deter-
mined by the terms of the purchase and sale agreement. The typical process is
that the buyer will have a period of time during which the buyer can perform
due diligence on the property. Due diligence typically consists of reviewing the
title and survey for the property, reviewing environmental reports, determining
the zoning status of the property, and reviewing existing leases and contracts
affecting the property. Due diligence may include additional investigations and
rarely is there a limitation on buyer’s due diligence. The scope of the due dili-
gence is negotiated in the purchase and sale agreement. The purchase and sale
agreement will also specify a closing date as well as the location of the closing.
Closing typically takes place at the title company’s offices and the title com-
pany acts as escrow agent for all money and documents. The seller and buyer
may show up in person to execute documents, but this is not typical. Money is
wired directly to the title company and the documents are couriered to the title
company. Once the title company confirms receipt of all of the documents and
the money, as well as satisfaction of all of the closing conditions set forth in the
purchase and sale agreement and instruction letters from buyer’s and seller’s
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Legalink – Investments in Commercial Real Property
counsel, respectively, the real estate transaction closes and the deed is released
from escrow for recordation. The deed is not recorded until after the real estate
transaction closes.
After the closing, the escrow period ends and the transfer of ownership is
complete. The state of the title to the property at closing is typically insured by
title insurance, which is issued by a title insurance company. During the due
diligence period, legal counsel to buyer will negotiate the form of title insur-
ance policy to be issued at the closing to the buyer.
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
Texas allows the joint ownership of real property through the use of tenancies
in common, joint tenancies, and community property. In addition to individu-
als, the following entities can also own real property in Texas: Limited Liabil-
ity Companies, Limited Partnerships, General Partnerships, and Corporations.
In Texas, co-ownership of real property through a tenancy in common does
not create the right of survivorship in the co-owners unless a right of survivor-
ship (commonly referred to as a tenancy in common with right of survivorship)
is expressly granted. When one co-owner dies, the interest of the deceased
co-owner goes directly to that person’s heirs (either by will or intestate succes-
sion) and not to the other co-owner. Additionally, in Texas, a grant of owner-
ship of real property to two or more persons is presumed to create a tenancy
in common, unless otherwise expressly stated in the conveyance. Ownership
of real property through a joint tenancy provides the co-owners with equal
interests in the entire property, along with the right of survivorship. With re-
spect to spouses in Texas, community property consists of the property, other
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USA – Texas
than separate property, acquired by either spouse during marriage. Each spouse
owns an undivided one-half interest in all of the community property.
In Texas, it is possible for the ownership of the land to be separate from the
ownership of the building(s) located on the land. One example of a structure
where the ownership of the land and the building(s) located on the land are dif-
ferent is a condominium structure in which the land is designated as a common
element and owned in by a condominium association, while any buildings on
the land is a separate condominium unit that is individually owned. Another ex-
ample of a structure where the ownership of the land and the building(s) locat-
ed on the land are different is a property where the land is ground leased. When
the land has been ground leased, during the term of the lease the building(s)
on the land are owned by the tenant, while the land is owned by the ground
lessor.
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
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Legalink – Investments in Commercial Real Property
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
There is no required hold period for real property in Texas. An owner can sell
property at any time. In times when real estate values are rising, it is not un-
common for a purchaser to “flip” the property and resell the property the same
day the purchaser acquires the property.
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
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USA – Texas
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
In Texas, a buyer of real property does not have the right to terminate existing
leases unless the transfer is through a foreclosure by a lender that has a priority
position or where the lease has been subordinated. The owner of the property
must wait for the existing lease to expire or the owner may terminate the lease
after a tenant default.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
Most cities and counties divide their jurisdictions into land use districts, or
“zones.” Within each zone a specific set of rules control the use of land. There
are often zones for single-family residences, multi-family dwellings, commer-
cial uses, industrial activities, open space or agriculture and, sometimes, mixed
uses. If a property owner desires to use property in a manner not permitted
under the applicable zoning ordinances, the owner may seek a variance or
conditional use permit, or seek to amend the zoning rules. Property in Texas is
zoned for specific uses and the owner can not change a permitted use without
governmental approval. Buyers must also be wary of covenants, conditions
and restrictions (CC&R’s) which commonly restrict property. Such CC&R’s
are private restrictions placed on the property which are enforced by private
rights of action.
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others
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Notary Public charges in Texas are also typically less than $20.00 U.S. Dol-
lars and the fee to record real property documents in the real property records
can vary substantially from county to county, but are generally nominal. Nei-
ther local nor state governments impose a transfer tax on real property being
conveyed in Texas. Real estate agents in Texas typically charge a commission
equal to 6% of the sales price of the real property, to be divided evenly between
the buyer’s agent and the seller’s agent.
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
In the U.S., property taxes are imposed by local taxing authorities, including
counties, cities, towns, special districts, and school districts. In Texas, each
year, an appraisal district in each county sets the appraised value of the real
property according to the market value of the real property. Depending on mar-
ket conditions, the appraised value may increase or decrease from year to year.
Property taxes are levied and paid annually according to the appraised value of
the real property. However, unlike some states, upon the sale of real property
in Texas, neither state nor local governments impose a transfer tax on the real
property being conveyed.
In addition to the real property tax, a property owner may have to pay ad-
ditional annual fees, such as business improvement district fees or CC&R
assessments. The existence of these fees depends on a property location and
the requirement to pay the fees is usually recorded in the real estate records.
Proper due diligence before purchasing any parcel of real property is neces-
sary to determine the annual taxes and fees applicable to a specific parcel of
real property.
There may also be special assessment taxes, which are levied for the cost of
specific local improvements such as streets, sewers, irrigation, and drainage.
Special assessments may be due periodically to improvement districts or be
levied only once by the city or county for a particular work or improvement.
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
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USA – Texas
Property management fees in Texas are negotiable but are typically 4% of the
income from the property plus the property manager’s out-of-pocket expenses.
If the property manager does work in addition to managing the property, such
as overseeing and coordinating tenant construction work, there is usually a
separate construction management fee of up to 4% of the cost of such construc-
tion for such activities.
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
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Individuals, domestic entities, and foreign entities are all permitted to own
real estate in Texas; however, foreign entities must qualify to do business in
Texas before “doing business” in Texas. The mere ownership of land is gener-
ally not enough to trigger the “doing business” requirement in Texas but the
facts of each business investment must be analyzed to make the determination.
Corporations, limited liability companies, limited partnerships and general
partnerships are all appropriate entities for owning real estate in Texas.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
If the property is not located in a commercial district appropriate for the type
of business being operated, the foreign investor may need to seek a variance
or conditional use permit, or seek to amend the zoning rules, to allow the busi-
ness to operate in that district. The requirements and amount of time neces-
sary to obtain a variance can vary depending on the locality, type of variance
sought and other factors, but takes approximately six months. The investor will
also need to obtain applicable permits and licenses. The approvals and licenses
needed to run a business vary depending on the type of business the investor
intends to conduct in various cities in Texas. The time frame for obtaining the
necessary approvals also varies depending on the nature of business and the
city.
If a foreign investor is seeking citizenship in the United States, the EB-5 visa
program offers a path to citizenship for non-citizens able to invest $1,000,000
in a business in the United States.
Patton Boggs’ real estate group devises innovative and sophisticated approaches
to achieve practical and cost-effective results for clients. We provide counsel on
all aspects of commercial real estate business, striving to always put our clients
in the best position to conduct business and take advantage of new opportunities.
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USA – Texas
Patton Boggs’ broad national real estate practice gives us valuable experience
with virtually every kind of commercial real estate activity – whether on a
local, regional or national basis – including all phases of commercial real es-
tate development, project and infrastructure development, investment, finance,
leasing, restructuring and workouts.
Patton Boggs represents investors (foreign and domestic), banks and other
institutional lenders, owners and developers in the complete range of real estate
matters, including:
– Real property acquisition, disposition and operation;
– Development and construction; Mediation, arbitration and litigation;
– Zoning and land use planning;
– Financing;
– Restructuring, workouts, foreclosures, bankruptcy and creditors’ rights
– Transactional tax planning
– Leasing
If we may be of assistance, we invite you to contact:
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Legalink – Investments in Commercial Real Property
Vietnam
368
Vietnam
1. Could you give a short outline with regard to the formal procedure of a
real estate transaction in your country starting from the signing of the
purchase agreement (including the closing) until formal ownership vests
in the purchaser?
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Legalink – Investments in Commercial Real Property
2. Does your legal system permit different sorts of ownership like ownership
of the whole land and construction or ownership for example only of one
unit or lots of units (condominium) of the improvements?
3. Does the legal system of your country permit joint ownership of real prop-
erty? Which kind of entities can be owner of real property in your coun-
try?
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Vietnam
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Legalink – Investments in Commercial Real Property
5. Is the land and/or the building registered in a formal register and is a good
faith purchaser protected with regard to the entries in this formal regis-
ter?
Vietnamese laws require that ownership of the LUR to the land, residential
housing, and/or constructions on the land be registered and certified for the first
time (to obtain the Certificate) and subsequently thereafter (for any changes
thereon) with the Registrar of Issuance of Certificate under the provincial of-
fice of the DONRE where the real property is located. The transaction will only
take effect as from the issuance of the Certificate or an amended Certificate, as
the case may be, by the DONRE local office.
6. What tax aspects are directly involved in a purchase of real property, for
example real property transfer tax and what is the percentage of it?
7. Do you have to hold the property for a specific time with respect to tax
reasons or is it in this context no problem to buy and sell property on a
short term basis, for example within a year?
Under the laws of Vietnam, it is not mandatory for the owner of the property
to hold the property for a certain period of time before being allowed to trans-
fer such property to another.
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Vietnam
8. Can the seller get his money out of your country after the transaction (re-
patriation of funds)?
Yes, foreign investors are free to remit their legitimate profits abroad, pro-
vided that they have fulfilled their tax obligations and the remittance is carried
out in accordance with Vietnamese regulations on foreign exchange control.
9. If you buy real estate that is leased to one or more persons are you allowed
to terminate the lease contract(s) or which restrictions have to be taken
into account?
Under the Civil Code, where the leased property is purchased, the lessee of
the property shall be afforded the same rights and obligations as agreed in the
lease contract for the remaining term of the contract. The new lessor of the
property cannot terminate the lease unless agreed to by the lessee.
10. Are you allowed to change the use of a building from residential use to of-
fice space or do you need official approval for doing so or is it not allowed
at all?
11. To get a feeling as to the amount of costs involved, what costs should be
taken into account if a foreign investor bought an existing building (and
land) for a purchase price of EUR 5 Million, particularly
– notarial costs?
– land register?
– real property transfer tax?
– advising lawyer (due diligence )?
– estate agent?
– others?
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Legalink – Investments in Commercial Real Property
12. What tax aspects are directly involved when holding a property, for ex-
ample yearly land tax after the transfer of ownership and what is the per-
centage of it?
374
Vietnam
13. What are the costs you have to calculate as a foreign investor, if you en-
gaged a professional caretaker for the purchased property? How does the
caretaker normally charge for their work?
14. Would you advise foreign investors now to invest in your country?
– Directly in real estate
– Through real property funds, open or closed ones
– Through other clear and secure financial products
– At the moment not because of the impacts of the worldwide financial crisis
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Legalink – Investments in Commercial Real Property
1. Direct investment:
Foreign developers invest directly in real property in Vietnam commonly
through (a) a joint venture with a Vietnamese partner who contributes the LUR
of the land for the project; (b) direct lease of land from the State by the foreign
developer; or in view of the long and complicated process of acquiring LUR as
well as addressing issues on compensation and eviction of land occupiers, (c)
taking over an existing project or acquiring interest in companies licensed to
carry out real estate projects.
2. Indirect investment:
Foreign investors can invest in real estate in Vietnam by way of indirect invest-
ment, including: (a) purchasing of shares, bonds and other valuable papers; (b)
investing through securities investment funds; and (c) investing through other
intermediary financial institutions.
These forms of indirect investment are also recommended since the foreign
investors do not need to set up any legal entity in Vietnam. In the case of pur-
chasing shares in a local public company, the maximum foreign capital ratio
of 49% under the Law on Securities have to be complied with by the foreign
investor.
15. Is any individual person and legal entity allowed to buy property in your
country or are there restrictions with regard for example to nationality or
registered office of legal entities? If there are restrictions are there ways
to organize a domestic entity for the purchase on a valid legal structure
notwithstanding?
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Vietnam
while foreign owned entities currently operating in Vietnam but not having
been authorized to conduct real property business may own property for the
residential use of the people working at the said enterprise.
16. If a foreign investor buys a plot of land in your country to run a business
there, what kind of official approvals are needed and what time and effort
are needed normally to get it?
For a foreign investor to acquire land and conduct real estate business in
Vietnam, the following approvals must be obtained:
1. With respect to the land: LUR to the land either through direct lease from the
State, or through the capital contribution of the LUR by a Vietnamese partner;
and
2. With respect to the project on the land: approval from the relevant authorities
(inter alia, DONRE for the general plan on compensation and site clearance and
the environmental assessment report; the Department of Construction for the
master planning at 1/500 scale and construction permit; and the local PC for the
compensation and site clearance and the issuance of an investment certificate).
The timing can take from several months to a year and even longer depend-
ing on the locality, the complexity and the schedule of implementation of the
investment project.
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Legalink – Investments in Commercial Real Property
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379